3-1-18 5:33 PM EST | Email Article
By Vipal Monga and Allison Prang 

TORONTO -- Canadian banks' first-quarter earnings were bolstered by gains outside their home turf, which analysts say could help cushion the lenders if Canada's overheated housing market falters.

Executives at Toronto-Dominion Bank on Thursday capped the banks' first-quarter earnings reports by suggesting their bank could beat earnings-per-share growth target of 7% to 10% this year. Profit in the U.S. retail business grew by 19%, outpacing the 12% growth in Canada.

"While there are risks on the horizon, if these positive conditions persist, adjusted earnings growth for the full year may exceed our medium-term targets," said Chief Executive Bharat Masrani.

Over all, TD made $2.35 billion Canadian dollars (about $1.83 billion), or C$1.24 per share, down 7.1% from a year before. The earnings were hit by a one-time C$453 million charge from changes to the U.S. tax code.

On an adjusted basis, TD made C$1.56 per share, up 17% from C$1.33 per share the year before. Analysts polled by Thomson Reuters were expecting adjusted earnings of C$1.46 per share.

Profits in the bank's U.S. business, which includes an investment in discount brokerage TD Ameritrade, totaled C$1.024 billion during the quarter. This marks the first time U.S. income has crossed the C$1 billion mark, Chief Financial Officer Riaz Ahmed said in an interview.

One big benefit to the banks with U.S. businesses: the recent tax overhaul, which cut corporate rates. On Thursday, TD suggested the annual benefit could be $300 million.

TD's results come after its large Canadian rivals also announced gains in their international businesses. Last week, Royal Bank of Canada kicked off the earnings season by announcing that its capital markets unit, the lion's share of which is based in the U.S., reported record profits.

Though Canada's banks have followed different strategies internationally, the five largest firms that dominate the industry here benefited from their non-Canadian arms. Bank of Montreal, which owns Chicago-based retail bank, BMO Harris Bank, reported that adjusted profits in the U.S. grew by almost a quarter. Canadian Imperial Bank of Commerce, also reported net income gains of 25% in its U.S. commercial banking and wealth management unit.

Bank of Nova Scotia, which has no meaningful U.S. business, increased profits in international banking by 16% after lending more money to customers in Chile, Colombia, Mexico and Peru -- the Pacific Alliance trade bloc.

"It's definitely a good sign, especially considering where everyone expects Canada to go," said John Aiken, an analyst with Barclays. Canada's economy will likely lag the U.S. in coming years, after having led developed nations in gross domestic product growth in 2017, he said.

Though Canada's economy is expected to continue growing, the housing market has slowed recently, as regulators toughen mortgage-financing rules and interest rates rise. A slowdown could affect mortgage originations at the banks. Riaz Ahmed, TD's CFO, said growth in mortgage loans will likely slow, but the impact of new financing rules likely won't be felt for another six months.

Encouraged by the opportunities in the U.S., TD is on the lookout for more deals to boost its banking presence in the Southeast of the country, said Mr. Masrani. The region is "particularly attractive," he said. "We can have more locations, more customers, and we'd like to have a higher level of scale than we have today." TD"s stock rose 0.7% to $58.41 in after-hours trading on the New York Stock Exchange.

Write to Vipal Monga at vipal.monga@wsj.com and Allison Prang at allison.prang@wsj.com


(END) Dow Jones Newswires

March 01, 2018 17:33 ET (22:33 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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