5 Years After the Crash – TD: A Case Study in Solid and Prudent Business Practices

This Canadian enterprise is one of the few that have successfully built a dominant U.S. franchise.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

With total current assets of $835.1 billion, up from $563 billion in 2008, TD is fast approaching RBC to become Canada’s largest bank by assets.  But TD is not interested in growth for the sake of growth.  The bank is focused on profitable growth with high returns.

As we know, all banks were tested in 2008 and 2009, and never before was strong risk management more important.  This worked very well for TD, as theirs was already a culture of prudent risk management.  TD’s strategy has been consistent since well before the crisis.  The company has been expanding and growing its North American retail businesses to deliver a consistent and reliable revenue stream, and this helped it to avoid many of the revenue challenges that other banks faced.  While CIBC had to learn the hard way and suffered major losses during the crisis, TD was on the right path all along.

TD’s culture, strategy, and execution before, during, and after the crisis have been impressive.  This is evidenced by how the stock has performed in recent years.  Not surprisingly, the stock has climbed by a stellar 222% since the lows of February 2009.

TD Bank chart

Strategically Exiting Business Products

In 2005, well before the crisis, TD exited the structured products business.  According to management, they “just didn’t like the risk embedded in all those complex, financially engineered investment vehicles.”  TD also refused to sell asset backed products because they deemed them to be too risky.  They also avoided sub-prime lending in the US, only lending to creditworthy clients in areas of the country that were relatively stronger.

A Truly North American Bank.

TD’s strategy is to focus on the lower risk retail side of the business and continue to expand in the US.  The success of TD’s strategy is evidenced by the fact that in 2012, TD opened its 1,300th US store and that it is the 5th largest bank by total deposits in New York City.  TD’s goal in New York City is ambitious, and simple.  They want to be the largest.

Segmented Revenue Review

The change in revenue contribution from the different segments compared to 2008 tells the story of how TD’s focus has evolved.

Segmented Revenue





$ mlns

% of total

$ mlns

% of total

Cdn   P+C Banking





Wealth   + Insurance





US P+C   Banking





Wholesale   Banking













Canadian Personal & Commercial Banking

The % of revenue derived from this segment has declined since 2008, as opportunities for expansion in Canada have slowed.  Ten years ago TD, which was focused on the commercial and retail side, merged with Canada Trust, which was retail focused.  The combined entity was complementary with lots of room to grow on the commercial side.  TD has therefore deliberately been investing in the commercial side since this merger.  TD is reaping the rewards of this strategy, as commercial loan growth has been strong recently.

Wealth and Insurance

The bank is also stepping up its focus on wealth management.  Revenue from the wealth management business as a percent of total revenue has risen since 2008.  In the latest quarter, earnings increased 18% versus the same period last year and Assets Under Management (AUM) was boosted from the Epic Partners acquisition, which significantly enhanced US and global capabilities.  The integration of this acquisition is going well, according to TD, and we can expect this acquisition to add to earnings in 2014.

United States P+C Banking

We have touched upon TD’s successful and aggressive expansion strategy in the U.S.  Seven years ago, TD had no retail presence in the U.S.  They recently opened their 1,300th U.S. store and they are still looking for small bolt-on acquisitions.  TD is also looking for new revenue sources.  In 2012, they acquired MBNA’s credit card portfolio and Target’s US credit card portfolio.  We can expect more such deals from TD going forward.

Wholesale Banking

TD’s capital markets business is small relative to its peers.  But as we touched on previously, this was a strategic decision that the bank made.  They exited the structured business and refused to sell asset backed investments.  So management sees no problem with having a relatively small wholesale business.  The bank wants a 15-20% return from this segment in the medium term.  It is not about growth for them, it is about returns generated.

Bottom Line

TD’s strategy has been based on sound and prudent business practices.  This is what got them through the crisis and helps to ensure the bank will continue to thrive.

The Canadian banks are a go to source for yield in this country.  In 2012, TD alone raised its dividend twice and has increased its target payout ratio range to 40-50% from 35-45%.  The Motley Fool has created a special FREE report that will help you fill your portfolio with even more solid dividend stocks just like the Canadian banks.  Click here now and we’ll send you “13 High Yielding Stocks to Buy Today” at no charge!

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Karen Thomas does not own shares in any of the companies mentioned above.  The Motley Fool does not own shares in any of the companies mentioned above. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Profit dial turned up to maximum
Tech Stocks

$1,000 Invested in Constellation Software Stock Would Be Worth This Much Today

Constellation Software (TSX:CSU) is trading above $2,000 today. Why this stock is so expensive, and is it worth buying?

Read more »

Dividend Stocks

Passive Income: 3 Top Canadian Stocks to Buy for Monthly Dividends

Companies such as Pembina Pipeline and Killam Apartment REIT pay investors monthly dividends, making them top bets for income-seeking investors.

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Stocks for Beginners

TFSA Investors: Top TSX Stocks to Buy With $6,000

Here are two safe, dividend-paying TSX stocks for your long-term portfolio.

Read more »

Gold medal

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Are you looking for growth stocks that could be huge winners in the next decade? Here are three top picks!

Read more »

Retirees sip their morning coffee outside.

Retirees: How to Make Over $95/Week in Passive Income TAX FREE!

Canadian retirees who are hungry for passive income should look to snag stocks like Sienna Senior Living Inc. (TSX:SIA) in…

Read more »

Man holding magnifying glass over a document

Where to Invest $500 in the TSX Right Now

Given the massive correction, long-term investors can start buying stocks like Shopify and goeasy to outpace the broader markets by…

Read more »

Aircraft wing plane

Air Canada Stock Is a Fantastic Deal Right Now

Air Canada (TSX:AC) is a great stock to own, as market fear turns into hope amid falling recession fears.

Read more »

Pixelated acronym REIT made from cubes, mosaic pattern

Beginner Investors: Get Passive Income by Investing in REITs!

You can get passive income by investing in REITs like Northwest Healthcare Properties REIT (TSX:NWH.UN).

Read more »