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Fundamental View
AS OF 18 Dec 2024Toronto Dominion is rated Aa3/A+/AA- by Moody’s/S&P/Fitch, but bail-in senior debt for TD is rated A2/A-/AA-. TD was downgraded by S&P and Moody’s amidst the BSA/AML impacts on the U.S. banking business in 2024, but we don’t expect further downgrades.
TD’s credit profile is supported by its scale, profitability, and history of strong credit quality, particularly in its core domestic banking footprint. TD also sees significant revenue contributions from the growing capital markets business and wealth management. U.S. retail banking has scale and is an important part of the overall franchise, but profitability will remain challenged.
We expect TD to continue to manage capital conservatively.
Business Description
AS OF 18 Dec 2024- Toronto Dominion is the second largest depository institution in Canada with C$2,062 bn in assets as of F4Q24 and a market cap of US$93.3 bn as of December 16, 2024. The company has C$1,269 bn in total deposits.
- As of 2024, TD ranked 9th in terms of U.S. deposits with approximately US$290.1 bn in deposits and 1,137 branches (SNL). The U.S. footprint is focused on the Atlantic coast including Delaware, New Jersey, New York, Massachusetts, New Hampshire, Connecticut, Maine, Vermont, and Pennsylvania.
Risk & Catalysts
AS OF 18 Dec 2024Toronto Dominion has a strong, largely retail-driven deposit base in both Canada and the U.S., which should mitigate the potential for a liquidity event.
The remediation efforts related to the U.S. business represent a medium term headwind for TD’s overall earnings profile, but one we view as manageable given the strength of the Canadian and Wholesale banking parts of the franchise. We expect TD to maintain strong capital and liquidity positions throughout the remediation period.
With the CEO transition, TD is conducting a strategic review of its business priorities and capital allocation, and therefore suspended its medium-term profitability targets. Management expects to provide an update to the medium-term targets in 2H25.
We view real estate-related risk in Canada as manageable for TD given low LTV of exposures in vulnerable markets and conservative underwriting, as well as significantly lower interest rates in Canada compared to the start of 2024.
Key Metric
AS OF 18 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | LTM 4Q24 |
|---|---|---|---|---|---|
| Revenue | 30,311 | 31,801 | 35,848 | 33,866 | 37,163 |
| Net Income | 8,846 | 11,371 | 13,544 | 7,883 | 6,509 |
| ROAE | 1.30% | 0.79% | 0.79% | 0.79% | 0.79% |
| NIM | 1.72% | 1.56% | 1.69% | 1.75% | 1.73% |
| Net Charge-offs / Loans | 0.34% | 0.18% | 0.15% | 0.24% | 0.34% |
| Total Assets | 1,289,484 | 1,394,270 | 1,406,122 | 1,407,709 | 1,479,549 |
| Unsecured LT Funding | 55,061 | 67,073 | 88,875 | 90,998 | 87,128 |
| CET1 Ratio | 13.1% | 15.2% | 16.2% | 14.4% | 13.1% |
CreditSight View Comment
AS OF 09 Dec 2024We maintain our Outperform recommendation for Toronto Dominion. Historically TD has traded as one of the tightest names in the Canadian bank peer group. However, over the past several quarters TD has traded towards the middle of the pack among Canadian banks, closer to BMO and BNS than to RBC. We continue to believe the best value in the sector in current conditions involves trading up in quality to TD and RBC (which we already rate at Outperform). With the direct financial impact of the BSA/AML settlement in the rearview mirror (but with many of the the costs of the multi-year build-out as well as costs/benefits of strategic changes in the U.S. business, still very much pending), we remain confident in credit fundamentals long-term.
Recommendation Reviewed: December 09, 2024
Recommendation Changed: March 08, 2023
Who We Recommend
BMO Financial
Hyundai Motor
State Bank of India
