Canada’s banking sector is considered a bedrock of stability, and this was confirmed during the 2007-2008 global financial crisis. No financial institution failed and the federal government reported zero bailouts of insolvent companies. Fast forward to the present, and based on the Bank of Canada’s 2024 Financial Stability Report, the country’s financial system remains resilient.
On the stock market, financials are the sixth-best performing sector year to date (+2.54%), considering the central bank has already made two rate cuts. However, the big bank stocks underperformed instead of benefiting from the high-interest-rate environment.
Toronto Dominion Bank (TSX: TD) was the standout pillar of resilience in 2008, and some investors are waiting to see the bank’s third-quarter (Q3) fiscal 2024 results on August 22 before deciding to buy, sell, or hold. As of this writing, TD trades at $76.82 per share and is down 6.8% year to date. Bank of Montreal is the only other big bank in negative territory (-12.74%).
Gold standard
The 2008 Global Financial Crisis was the worst crisis in decades. Notwithstanding the toughest market conditions, TD’s retail business in Canada and the U.S. excelled and was the bank’s anchor. Former TD Bank Financial Group President Ed Clark said that the retail business was the engine of TD’s earnings.
U.S. banks lost over US$26 billion during the mortgage meltdown, while Canada’s Big Six banks collectively reported US$2.5 billion in Q4 2008. Clark said TD didn’t do the things that blew other banks up, and it has since become the banking sector’s gold standard.
Latest financial highlights
In Q2 fiscal 2024 (three months ending April 30, 2024), TD’s revenue increased 0.76% to $13.8 billion, while net income fell 28.9% to $2.56 million compared to Q2 fiscal 2023. However, in the first half of the fiscal year, net income climbed 9.3% year over year to $5.39 billion. The provision for credit losses (PCL) increased 37.8% to $2.07 billion from a year ago.
TD Bank Group’s current president and chief executive officer, Bharat Masrani, said the bank delivered strong quarterly results and had solid momentum across the franchise. “Our business in Canada, the United States, and across the globe are well-positioned to meet the needs of our nearly 28 million customers.”
TD’s money-laundering issue across the border is the black eye to an otherwise stable financial performance. The U.S. Department of Justice is investigating Canada’s second-largest bank over allegations of money laundering and other financial crimes at several of its U.S. branches.
Masrani also said the bank is cooperating with American regulators and authorities. In addition to the comprehensive overhaul of TD’s U.S. AML program, TD has set aside US$450 million for potential regulator fines. However, some analysts say the fine might exceed US$1 billion.
Dividend safety
TD remains a solid investment choice for income-focused investors and retirees. The current dividend yield is 5.31%, and the quarterly payouts are safe and secure. Paying dividends is in the DNA of this $135.15 billion bank. It started sharing a portion of profits in 1857, and its track record is now 167 years.
