of Canada, and a quarter of the Canadian Imperial Bank of Commerce’s rise in the same period.
While TD Bank saw a 4-per-cent increase in quarterly profit compared to a year earlier, Q3 growth in its Canadian banking division—the bank’s largest, accounting for about half of the company’s profit—is only at 1.4 per cent, Bloomberg News
“We’re all collectively scratching our heads on why this premium domestic retail bank isn’t keeping up with its peers,” TD analyst Mario Mendonca said.
TD Bank has established 7 per cent growth as a medium-term objective for the Canadian banking division, according to Teri Currie, TD’s head of Canadian personal banking.
Currie pointed at competitive pricing, lower interest rates, the cost of funds for mortgages, and repricing on fee-based products as the most probable culprits of the Bank’s performance troubles, which have so far led to two stock downgrades.
On August 25, Robert Sedran of CIBC Capital Markets cut TD’s stock from buy to the equivalent of hold.
“As much as we’re heartened by the stronger U.S. performance, we expect and need better from the Canadian business relative to its peers,” Sedran wrote in a client note.
Gabriel Dechaine of Canaccord Genuity Group Inc. decided on a similar move, downgrading TD’s stock to hold and saying that the division “is falling short of peer results and the bank’s own targets.”
However, Dechaine noted that the lag in TD’s performance might be due to concerns about the weak economy and the housing sector’s affordability crisis.
“To be fair, it seems odd to criticize TD for its low growth in Canadian retail banking at a time when market concerns over consumer indebtedness and late-cycle credit growth in certain segments (e.g. housing in overheated markets) are elevated,” Dechaine explained. “However, we also believe it is fair to compare TD’s actual performance to targets it communicated to the Street.”
Barclays PLC’s John Aiken, who rated TD stock a sell, echoed this sentiment.
“They’re putting the brakes on domestic growth,” Aiken said. “They’re consciously growing slower than peers because they’re worried about what’s going on with the economy.”
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