Toronto-Dominion posts record U.S. earnings even before tax cut

The booming U.S. economy continues to fuel earnings at Toronto-Dominion Bank — and President Trump's tax cuts will only make things better.

The Canadian lender, which has more branches in the U.S. than its home country, had record profit of C$952 million ($741 million) from its U.S. retail business in the fiscal first quarter, a 19 percent surge from a year earlier. Earnings will get a further boost from a tax bill President Trump signed into law in December, adding about $300 million to the bottom line this year. The lower rates may boost annual profits at Wall Street's biggest banks by more than $10 billion, based on what they paid in taxes over the past three years.

TD Bank signage

"To the extent that their objective might have been to earn a more competitive tax environment internationally, one would have to agree that this package certainly achieved that," Chief Financial Officer Riaz Ahmed said in a phone interview Thursday after the Toronto-based lender posted profit that beat analysts' estimates.

Toronto-Dominion's U.S. retail bank tax rate is now in the 11 percent to 12 percent range, Ahmed said, suggesting a benefit of $55 million to $60 million a quarter this year. The windfall rises to $300 million after including the bank's stake in TD Ameritrade, he added.

Toronto-Dominion Bank will benefit more than any other Canadian lender from the U.S. tax changes. Royal Bank of Canada anticipates an annual benefit of C$250 million from the changes, and expects its full-year tax rate will drop from 35 percent to the lower end of a 22 percent to 24 percent range, CFO Rod Bolger said in a Feb. 23 earnings call. Royal Bank, which owns Los Angeles-based City National and has significant capital markets and wealth operations in the U.S., is using a blended rate of about 23 percent for each quarter in 2018, he said.

Bank of Montreal, whose U.S. exposure includes its Chicago-based BMO Harris Bank and capital markets operations, estimates an additional $100 million to its U.S. earnings this year. Canadian Imperial Bank of Commerce, which last June bought Chicago-based PrivateBank, said the tax cuts will be "beneficial" but didn't provide an estimate.

Here's a summary of Toronto-Dominion's quarterly results:

Net income fell 7 percent to C$2.35 billion, or C$1.24 a share, from C$2.53 billion, or C$1.32, a year earlier. Adjusted earnings, which exclude a C$453 million charged tied to the tax changes and other one-time items, were C$1.56 a share, the bank said. That beat the C$1.46 average estimate of 12 analysts surveyed by Bloomberg. The bank raised its quarterly dividend 12 percent to 67 cents. Canadian retail earnings, which includes banking and wealth management, rose 12 percent to C$1.76 billion. Earnings from wholesale banking rose 4.1 percent to C$278 million.

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