By Andrea Hopkins
Toronto, July 30 Toronto-Dominion Bank
, Canada's second-largest lender, said it will take a
third-quarter charge after tax of C$418 million ($406 million)
due to recent severe weather in Alberta and Ontario and to boost
its reserves for auto insurance claims.
The weather-related hit on TD's insurance and mortgage
lending business was largely shrugged off by investors and
analysts as a widely expected one-time expense. But its move to
strengthen reserves on auto insurance claims suggested the
business may not be as profitable as the bank would like.
Competitors, including Royal Bank of Canada, Bank of Nova
Scotia and Canadian Imperial Bank of Commerce, are also expected
to take an insurance hit in the third quarter due to flooding
and storms, but TD has the largest home and auto insurance
business of the big banks.
Shares in TD, which routinely notches up quarterly profit
near the C$1.72 billion recorded in the second quarter, were
down 1.6 percent in early afternoon trade at C$87.43, while the
other Canadian bank shares were mixed.
TD said the charges, which hit both its insurance and its
Canadian banking units, will result in an after-tax net loss of
between C$240 million and C$290 million in its wealth and
insurance business in the third quarter.
Excluding the charges, third-quarter insurance earnings are
estimated to be in the range of C$130 million to C$180 million
after tax, it said.
The third-quarter charges are broken down in three
categories, two of which reflect estimated claims for evacuation
and home and auto damage due to severe storms in southern
Alberta on June 20 and in the Toronto area on July 8.
TD said it would take weather-related insurance charges of
C$125 million after tax, which impact its insurance profits, and
C$93 million for provisions in mortgage lending due to the
Alberta flood, an indirect consequence of the weather which hits
its Personal and Commercial banking profits.
Floods in the Western Canadian province of Alberta in June
shut down the country's oil capital, Calgary, displaced more
than 100,000 people and left many without power for days.
In Toronto, a severe rainstorm this month caused flooding,
power cuts and transit chaos.
Canadian Pacific Railway's second-quarter also
suffered due to the floods and insurer Intact Financial
warned last week that quarterly results would be hurt by
TD's remaining C$292 million after-tax charge is for
increased reserves against claims in its auto insurance
business, which is the area analysts focused on.
The Toronto-based bank had already increased its auto
insurance reserves in the fourth quarter of 2012 in response to
auto insurance reforms in Ontario, Canada's most populous
province. But it said it needs to further strengthen reserves to
deal with rising third-party bodily injury claims and fraud.
"The Ontario auto insurance market has presented a
significant challenge to our business," Chief Executive Officer
Ed Clark said in a statement.
The business earned C$360 million a year earlier.
"(The charge) raises questions about Ontario pricing
adequacy, what changes TD may make in how it serves the Ontario
auto insurance market and whether there could be further
strengthening of reserves," Desjardins analyst Michael Goldberg
wrote in a research note.
Ontario's Liberal government has proposed at 15-percent cut
to average auto insurance rates in Canada's most populous
province, a move considered widely popular with voters, but
which has angered auto insurers.