Toronto-Dominion Bank missed analysts’ earnings estimates after setting aside more money than forecast for potentially souring loans and announcing a restructuring charge related to a planned three per cent cut to the lender’s workforce.

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The bank, Canada’s second-largest lender, said Nov. 30 that it took $266 million in after-tax restructuring charges in the fiscal fourth quarter related to the staff reductions as well as reworking its real estate footprint, including a reduction of 111,000 square meters of office space in its United States operations.

Toronto-Dominion also warned that it will be “challenging” for the bank to meet its medium-term earnings targets for fiscal 2024.

The layoffs, which the Toronto-based bank said will come through attrition as well as targeted cuts, follow similar announcements by other Canadian banks, including Royal Bank of Canada, Bank of Montreal and Bank of Nova Scotia. Toronto-Dominion’s workforce reduction would amount to more than 3,000 positions. On a pre-tax basis, Toronto-Dominion said that it expects the restructuring to generate $400 million in savings in the current fiscal year and $600 million annually.

“We’ve undertaken a restructuring program to streamline and deliver efficiency, to create capacity to invest in the future,” Toronto-Dominion chief financial officer Kelvin Tran said. Some job cuts have already been made and others will happen in 2024, he said, declining to specify any particular area where the bank is trimming.

The bank’s shares slipped 1.8 per cent to $81.84 at 9:43 a.m. in Toronto trading. They have dropped 6.6 per cent this year, compared with a 5.9 per cent decline for the S&P/TSX commercial banks index.

Also reporting results Thursday were Royal Bank, Canada’s biggest lender, and Canadian Imperial Bank of Commerce, both of which beat analysts’ estimates. Royal Bank’s earnings for the three months through October got a significant boost from $578 million in deferred tax adjustments. The shares of both lenders climbed.

At Toronto-Dominion, provisions for credit losses totalled $878 million in the quarter, more than the $844.5 million analysts had expected. Toronto-Dominion earned $1.83 a share on an adjusted basis, it said in a statement Thursday, less than the $1.90 average estimate of analysts in a Bloomberg survey.

‘Complex’ environment

For fiscal 2024, it will be difficult for the bank to meet its medium-term adjusted earnings-per-share growth target of seven per cent to 10 per cent and return-on-equity target of more than 16 per cent “as it navigates a complex macroeconomic environment” along with “expected further normalization” in loan-loss provisions, Toronto-Dominion said in the statement.

Adjusted non-interest expenses came in at $7.24 billion for the fourth quarter, more than the $6.89 billion analysts expected.

“We believe it was a mixed quarter for TD at first look with elevated expenses offsetting much better margins in U.S. lending, while credit costs were as expected,” Keefe, Bruyette & Woods analysts Mike Rizvanovic and Abhilash Shashidharan said in a note to clients. “Looking ahead, however, we see the bank’s sizable restructuring program as a positive, and likely to boost forward consensus estimates meaningfully.”

We see the bank’s sizable restructuring program as a positive

Mike Rizvanovic and Abhilash Shashidharan, analysts, Keefe, Bruyette & Woods

Toronto-Dominion said it’s still dealing with a U.S. Department of Justice investigation about its compliance with anti-money-laundering rules. It said it doesn’t think that will have a major impact on financial results, but “there is a possibility that the ultimate resolution of legal or regulatory actions may be material to the bank’s consolidated results of operations for any particular reporting period.”

Tran declined to comment further on the investigation.

Analysts have said they are unsure when a penalty in the matter could be assessed, but have estimated it could range from US$500 million to US$1 billion. While it can afford to pay such a fine — it has plenty of excess capital after its failed deal to acquire Memphis, Tenn.-based First Horizon Corp. — the matter could come with higher compliance costs and reputational damage, National Bank of Canada financial analysts led by Gabriel Dechaine wrote in a note to clients last week.

Royal Bank

At Royal Bank, corporate and investment banking revenue rose to the highest in almost two years in the fiscal fourth quarter, and the capital-markets unit’s net income climbed 36 per cent from a year earlier. Results were also helped by a $578-million boost related to deferred tax adjustments. The Toronto-based lender earned $2.78 per share on an adjusted basis in the fiscal fourth quarter, topping the $2.62 average estimate of analysts in a Bloomberg survey.

Provisions for credit losses totalled C$720 million, more than the $662.6 million analysts had expected.

Royal Bank’s U.S. subsidiary, City National Bank, reported an adjusted net loss of US$89 million for the three-month period. That followed a loss of US$12 million in the third quarter after its parent injected almost US$3 billion in capital this year into the Los Angeles-based bank, which has struggled with deposit outflows and a higher cost of funding. Royal Bank cut five per cent of City National employees and incurred severance costs in the quarter, Royal Bank chief executive Dave McKay said on a conference call with analysts Thursday.

Royal Bank is seeking new domestic growth through a landmark $13.5-billion deal to acquire HSBC Holdings PLC’s Canadian operations, a deal announced a year ago. The transaction has won approval from the Competition Bureau, Canada’s antitrust authority, but is still awaiting the green light from Finance Minister Chrystia Freeland.

McKay said on the conference call that he’s “confident in the overall outcome of this transaction” and that it would send a “very bad signal” to foreign investors if the government were to block the deal.

“It would look horrible on Canada if you didn’t allow the free flow of capital,” he said.

CIBC beats

Toronto-based CIBC also beat estimates as it reported lower-than-expected provisions for potentially bad loans and kept expenses in check.

The bank earned $1.57 per share on an adjusted basis in the fiscal fourth quarter, beating analysts’ $1.53 average estimate.

CIBC set aside $541 million in credit-loss provisions, less than the $559.9 million forecast by analysts. Provisions for losses on impaired loans climbed $259 million. CIBC’s earnings have previously been dented by a surge in impairments in the bank’s U.S. office loan portfolio.

Bloomberg.com