TD Bank reports $1.6B profit in fourth quarter, announces U.S. acquisition

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In this Nov. 12, 2009 file photo, a sign for TD Bank is shown in New York. (AP Photo/Mark Lennihan, file)

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   • CIBC posts $852-million profit for fourth quarter, beats consensus estimate

TORONTO - TD Bank Financial Group (TSX:TD) reported a fourth-quarter profit of $1.6 billion Thursday as it announced a deal to buy U.S.-based money manager Epoch Holding Corp. for US$668 million in cash.

"We've been looking for an opportunity to acquire a U.S. asset manager to build our North American Wealth business, which is a key growth area for TD," said Mike Pedersen, who runs TD's wealth management and insurance business.

"This acquisition makes strategic sense for TD. It will broaden our offer for institutional and retail clients in Canada and will immediately and significantly strengthen our U.S. wealth business."

Shareholders of Epoch (Nasdaq:EPHC) will receive US$28 per share under the deal that will see the company continue to operate under its current brand name and operating structure.

With the acquisition, TD said it expects to add approximately US$24 billion in assets under management to the US$207 billion already under management by TD Asset Management.

The purchase was announced as TD released its fourth-quarter and full-year results for 2012.

TD reported a profit for the three months ended Oct. 31 of C$1.66 per diluted share, compared with a profit of $1.59 billion or $1.68 per diluted share the same time last year. Revenue totalled $5.89 billion, up from $5.66 billion.

On an adjusted basis, TD had $1.83 per share of diluted earnings — up from $1.75 per share a year earlier and two cents a share above analyst expectations.

Analysts on average expected TD would have adjusted earnings of $1.81 per share and revenue of $6 billion, according estimates compiled by Thomson Reuters.

"The fourth quarter earnings contributed to a strong year for TD," TD chief executive Ed Clark said in a statement.

"We achieved those results despite a tough operating environment, demonstrating the strength and resilience of our business model."

Canadian personal and commercial banking earned $806 million in the quarter, up from $754 million a year ago, while U.S. personal and commercial banking earned $316 million, up from $295 million.

Wholesale banking earned $309 million, up from $280 million.

TD's wealth and insurance business earned $242 million, down from $289 million a year ago.

Barclays analyst John Aiken said credit was weaker than anticipated, with a sizable increase in domestic loan impairments.

"This drove a significant increase in provisions for credit losses," Aiken wrote in a note to clients.

"While we believe that this could be more of an exercise in catching up as opposed to an indication of structural deterioration, it is something that bears watching, particularly as some of TD's peers have also shown some weakness in domestic retail credit."

For its full financial year, TD said it earned $6.47 billion or $6.76 per diluted share on $23.12 billion in revenue. That compared with a profit of $6.05 billion or $6.43 per diluted share on $21.66 billion in revenue in the prior year.

Also reporting quarterly earnings Thursday was CIBC (TSX:CM) and National Bank (TSX:NA).

CIBC (TSX:CM) earned $852 million in the fourth quarter or $2.02 per share, up from $757 million or $1.79 per diluted share a year ago. Revenue totalled $3.16 billion, down slightly from $3.2 billion a year ago.

Adjusted diluted earnings per share came in at $2.04.

Analysts had expected on average CIBC would have adjusted earnings of $1.98 per share and revenue of $3.2 billion in the fourth quarter, according to estimates compiled by Thomson Reuters.

CIBC said its fourth quarter had several one-time items that collectively reduced its earnings by two cents per share. The year-ago results included one-time items that added a penny per share.

Meanwhile, National Bank increased its quarterly dividend to 83 cents from 79 cents as it reported a fourth-quarter profit of $351 million or $1.97 per share. The results compared with a profit of $292 million or $1.62 per share a year ago.

Revenue at National Bank grew 15 per cent to $1.35 billion, compared with $1.17 billion in the same period last year.

RBC Capital Markets analyst Andre-Philippe Hardy noted the CIBC results were better than expectations, but retail revenue growth remained weak.

"We believe that, for the market to have a positive change of view on CIBC's stock relative to peers, better retail revenue growth is needed and fourth-quarter 2012 results are unlikely to change investors' view on the bank's relative growth profile in domestic retail banking," he wrote in a note to clients.

Hardy noted that National Bank's results were in-line with the market expectations, but this was offset by lower than expected capital ratios.

"We do not expect meaningful changes to our retail banking profitability forecasts while the bank's relative capital position weakened in the quarter," he wrote.

In October, debt rating agency Moody's Investors Service placed the long-term ratings of six Canadian banks including TD, CIBC and National Bank on review for a possible downgrade due to worries about consumer debt and home prices.

The ratings agency said high levels of consumer debt and high housing prices have left the banks more vulnerable to downside risks to the Canadian economy than in the past.

Moody's also noted at the time that its scenario for Canada's economy is for growth between two per cent and three per cent next year, but that the downside risks had increased.

TD shares were down $1.63 at $80.95 on the Toronto Stock Exchange in trading Thursday morning, while CIBC was down 44 cents at $80.08.

National Bank shares were down 71 cents at $77.06.

Note to readers: This is a corrected story. An earlier version valued the Epoch deal at US$688 million.