Retail banking in U.S., Canada impels earnings growth
The booming U.S. economy continues to fuel earnings at Toronto-Dominion Bank – and Donald Trump’s tax cuts will only make things better.
The leading Canadian lender had record profit of C$952 million ($741 million) from its U.S. retail business in the fiscal first quarter, a 19% surge from a year earlier. Earnings will get a further boost from a tax bill President Trump signed into law in December, adding about $300 million to the bottom line this year. The lower rates may boost annual profits at Wall Street’s biggest banks by more than $10 billion, based on what they paid in taxes over the past three years.
“To the extent that their objective might have been to earn a more competitive tax environment internationally, one would have to agree that this package certainly achieved that,” Chief Financial Officer Riaz Ahmed told Bloomberg after the Toronto-based lender posted profit that beat analysts’ estimates.
Toronto-Dominion’s U.S. retail bank tax rate is now in the 11% to 12% range, Ahmed said, suggesting a benefit of $55 million to $60 million a quarter this year. The windfall rises to $300 million after including the bank’s stake in TD Ameritrade, he added.
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Toronto-Dominion Bank will benefit more than any other Canadian lender from the U.S. tax changes. Royal Bank of Canada anticipates an annual benefit of C$250 million from the changes, and expects its full-year tax rate will drop from 35% to the lower end of a 22% to 24% range, CFO Rod Bolger said in a Feb. 23 earnings call. Royal Bank, which owns Los Angeles-based City National and has significant capital markets and wealth operations in the U.S., is using a blended rate of about 23% for each quarter in 2018, he said.
Bank of Montreal, whose U.S. exposure includes its Chicago-based BMO Harris Bank and capital markets operations, estimates an additional $100 million to its U.S. earnings this year. Canadian Imperial Bank of Commerce, which last June bought Chicago-based PrivateBank, said the tax cuts will be “beneficial” but didn’t provide an estimate.
