TORONTO Toronto-Dominion Bank (TD.TO) reiterated its cost-savings outlook from its recent Commerce Bancorp purchase and lifted its full-year U.S. earnings forecast, leaving analysts relieved that the bank's U.S. business isn't worsening.
TD, Canada's third-largest bank by assets, said on Monday that it expects net income from its U.S. personal and commercial banking segment to be at least C$750 million ($745 million) in fiscal 2008, up from a previous estimate of C$700 million.
"We view this very positively in light of the difficult environment faced by U.S. banks," Dundee Securities analyst John Aiken said in a research note.
Investors appeared to agree. TD shares were up 83 Canadian cents, or 1.3 percent, at C$65.77 by early afternoon on the Toronto Stock Exchange. That topped the S&P/TSX financial index's 0.8 percent rise.
For fiscal 2009, TD's target net income for the U.S. segment is "at least" C$1.2 billion, unchanged from a previous estimate, but a bank executive said earnings could turn out to be higher.
"In fact you should think of C$1.2 billion as a starting point," Chief Financial Officer Colleen Johnston said on a conference call. "We won't be satisfied at this level."
As for New Jersey-based Commerce Bancorp, which the Canadian bank acquired on March 31, TD reiterated that it expects cost savings of $310 million before tax, to be realized by the end of fiscal 2009.
Ongoing restructuring and integration charges will amount to $420 million pre-tax over the next two or three years and will affect its income statement, TD said. The bank's earnings forecasts exclude such restructuring charges.
TD said it expects second-quarter earnings from U.S. personal and commercial banking to be C$130 million, excluding contributions from Commerce. That compares with C$127 million in the first quarter.
TD's second quarter ends April 30, and it will report results on May 28.
"I recognize that some people are still worried about our business in the United States," President and Chief Executive Ed Clark said on the conference call.
But despite fears of a U.S. recession and integration concerns, as well as a "tough period" ahead for loan-loss provisions, Clark said that TD will still be a "positive outlier" -- in other words, it will exceed industry performance.
The bank said it sees the third-quarter net income "run rate" for its U.S. segment at around C$250 million, assuming the Canadian and U.S. dollars are at par. This will include contributions from Commerce, reported with a one-month lag.
Bharat Masrani, president and CEO of TD Commerce Bank -- the new name for the U.S. retail operation -- said TD is comfortable with its $29.7 billion commercial lending portfolio, including having 36 percent of the portfolio composed of investment real estate loans.
The real estate loans are diversified by property type and by geography, Masrani noted.
"We have limited exposure to the markets hardest hit by the current economic conditions," Masrani said.
Robert Sedran, an analyst at National Bank Financial, noted that TD's Banknorth unit is seeing higher loan loss provisions, consistent with other U.S. banks.
However, "the fact that TD is looking for this segment to be slightly better than originally announced should be viewed positively, in our opinion," Sedran said in a research note.
(Additional reporting by John McCrank; editing by Rob Wilson)