(Adds share-price activity, analyst commentary, rewrites throughout.) By Monica Gutschi Of DOW JONES NEWSWIRES Toronto-Dominion Bank (TD), which had avoided many of the problems that have battered its peers, shocked the market Thursday with the news that it would take a series of fourth-quarter charges on credit and securities losses.
The bank said it would take an after-tax loss of C$350 million on its credit trading book, and another C$153 million loss on securities trading, because of the illiquid and volatile markets.
The news follows hard on the heels of Bank of Nova Scotia's (BNS) announcement that it would take C$890 million in write-downs in the fourth quarter, and foreshadows similar announcements from the other Canadian lenders.
"On the theory that you should be trying to dump everything into the quarter, you have nothing to lose," said Bruce Campbell, a principal at Campbell-Lee Investment Management, who counts TD as his largest bank holding.
And Sumit Malhotra, Canadian bank analyst at Merrill Lynch, suggested earlier Thursday that he expects fourth-quarter write-downs from all the banks to total C$5.3 billion.
Canadian Imperial Bank of Commerce (CM), the bank most exposed to U.S. subprime housing and structured credit, is expected to report a charge of up to C$2 billion.
The growing realization that no bank is immune from the impact of volatile equity markets and the wide credit spreads, hit bank shares like a hammer.
In Toronto Thursday, TD is down C$4.45 to C$45.48 and Bank of Nova Scotia is off C$1.90 to C$33.34.
Leading the decline is CIBC, off C$4.94 to C$43.35. Royal Bank of Canada (RY) is down C$3.96 to C$37.23 and Bank of Montreal (BMO) is off C$2.13 to C$35.87.
"At this juncture, everybody is kind of sitting here and really wondering what other shoes are there in the bank portfolios to drop," said Ross Healy, portfolio manager at Strategic Analysis. "You can't kind of help but feel that with the economic contraction (now), there are probably more kinds of bad news to come from banks, and you just don't know where."
Now, he noted, the bad news is coming from the banks that most observers had thought "had kept their noses clean," indicating that the global credit problems are widespread.
Healy, who owns no Canadian banks in his portfolio, said he began shying away from financial services once the credit problems in the U.S. began. "When the problem is debt, you better avoid the banks," he said. "That's always been the case, as long as I've been in the business."
Cdn Banks Still Have Strong Capital Positions Still, investors said they were comforted by the strong capital positions of Canadian banks. Even with the write-downs, TD is expected to have a Tier 1 capital ratio of 9.8% at the end of the fourth quarter.
DBRS reaffirmed its ratings on the bank, and said trends were stable.
As well, the bank said Thursday that its strategic positioning in wholesale banking and its strong retail-banking platform would stand it in good stead.
It expects to report adjusted earnings of C$642 million or 79 Canadian cents a share in the fiscal fourth quarter.
That compares with the Thomson Reuters mean analyst estimate of C$1.39 a share for the quarter, which ended Oct. 31.
In the year-earlier fourth quarter, the Canadian chartered bank earned C$1.40 a share on an adjusted basis.
Toronto Dominion expects to report GAAP net income of C$1.22 a share in the quarter.
Helping offset the impact of the write-downs, the bank reported a gain from the reversal of a litigation reserve it held related to failed energy trader Enron. As a result, it has recorded a positive adjustment of C$323 million on an after-tax basis.
Due to global liquidity issues, the widening in the pricing relationship between asset and credit protection markets, or basis, hurt credit trading-related revenue for the first three quarters of 2008. The "dramatic" absence of liquidity in credit markets in September and October produced an unprecedented widening of the basis, causing larger losses in Wholesale Banking in the fourth quarter, TD said.
To address the continuing deterioration, the bank has refocused its credit-trading business, including continuing to reduce this book of business, and reclassified certain trading financial assets into the available-for-sale category during the quarter. It said after-tax credit-trading losses of about C$350 million in the Wholesale Banking segment will result in an adjusted loss of C$228 million in this segment in the fourth quarter.
The bank also said its Corporate segment will record an adjusted loss of C$153 million for the quarter, compared to its usual loss of about C$40 million. The higher loss reflects illiquid markets.
However, it said its retail business remains strong, and it projects adjusted earnings of C$1.046 billion from its Retail segment in the fourth quarter.
Company Web Site: http://www.td.com
-Monica Gutschi, Dow Jones Newswires; 416-306-2017; monica.gutschi@dowjones.com
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(END) Dow Jones Newswires
November 20, 2008 10:57 ET (15:57 GMT)

Publié le 20 novembre 2008 Copyright © 2008 Dowjones