Things have gone from bad to worse for shares of TD Bank (TSX: TD), which is nearly off 28% from its all-time highs of almost $108 per share.
What went wrong? The SVB failure and broader banking volatility centered on U.S. banks sent the U.S.-exposed Canadian bank tumbling to lows not seen since July 2022. It’s ugly out there, as U.S. bank stocks continue to feel the heat of likely unwarranted contagion worries and the latest chatter from the U.S. Federal Reserve.
Fed chairman Jay Powell said the banking system is sound. I believe him. But not everybody does in the midst of the carnage. Despite the cracks in the armour of various regional U.S. banks, the Fed followed through with its rate hike of 25 basis points. It was as expected.
Only time will tell what the effects of recent rate hikes will be. The fact that the Fed hiked in light of the failure of Silicon Valley Bank suggests there may be too much unjust panic when it comes to the banks.
TD Bank stock: Way too much fear could mean opportunity for value seekers willing to brave the dip
When it comes to TD Bank stock, I don’t think there’s all too much to hit the panic button over. With so much excess risk baked into the stock, I think the risk/reward scenario is actually the best it’s been in years.
Indeed, whenever investors overweigh the risks with any given stock, the actual risks to be had may be minimal. At less than 10 times trailing price to earnings, I view TD stock as too cheap, even given the events that unfolded in the U.S. regionals this month.
For now, TD’s managers don’t see the First Horizons deal closing in May 2023. Things have gotten ugly in a hurry. Walking away may be the best course of action. In any case, I expect TD Bank will still be hungry for a deal, likely with a U.S. regional.
In a prior piece, I’d noted the possibility that uncertainty regarding the acquisition of First Horizons wasn’t a negative. In fact, it may be a positive if TD can get a better deal at a later date.
At the end of the day, the U.S. banking scene is where next-level growth is for the major Canadian banks. With smart risk managers and a terrific chief executive officer in Bharat Masrani, I think TD Bank could walk away from 2023 and U.S.-banking turbulence with a bargain in hand. Whether that bargain is First Horizons or another regional is the billion-dollar question.
Don’t expect the U.S. banking horrors to come to Canada
The U.S. bank “crisis” isn’t likely to work its way into Canada, according to various pundits. Canadian finance minister Chrystia Freeland noted that its banks can withstand “periods of turbulent.”
Not only does TD Bank have excellent risk managers (perhaps the best of the Big Six), but it also has lots of capital to cover soured loans. Indeed, Canada’s banks are no slouch. They’re built to survive through good times, bad times, and downright horrific times.
For now, TD faces headwinds as Canada sinks into a potential recession. As the OSFI (Office of the Superintendent of Financial Institutions) keeps watch of the banks’ liquidity levels, I think the Big Six Canadian banks are deserving of a high level of confidence.
I remain confident in the big banks. And TD Bank stock stands out as one of the best banks for your buck going into April.
