The resiliency of the Canadian banks continues to be tested. Most recently, tariff threats and posturing continue. This is threatening the economy and, of course, Canadian banks. Not surprisingly, Canada’s two biggest banks, Toronto Dominion Bank (TSX:TD) and Royal Bank of Canada (TSX:RY), have seen their stock prices suffer recently. So, which is the better buy today, TD Bank or Royal Bank stock?
Let’s explore.
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Royal Bank stock: Coming off of all-time highs
As Canada’s biggest bank, Royal Bank is outperforming on the heels of its 2024 acquisition of HSBC. In fact, in the bank’s first quarter 2025 report, we got a glimpse of the strength of the business.
Net income of $5.1 billion increased 43% versus last year, driven by the acquisition of HSBC as well as strength across all business segments. Adjusted net income of $5.3 billion increased 29% and adjusted earnings per share (EPS) of $3.62 increased 27%.
Rising provisions for capital losses (PCLs) continued in the quarter, with the Royal Bank reporting PCLs of $1 billion, up 29% versus last year. Rising PCLs have been a concern for the whole banking system for quite some time, but the banks have been managing this well. Unfortunately, the new tariff wars might create pretty serious economic turmoil. This would pressure borrowers and send PCLs skyrocketing.
Since the start of tariff threats, Royal Bank stock has been hit. In fact, the stock is down 10% since the end of January. This follows a very strong 2024 that saw Royal Bank stock hit new highs. In terms of valuation, the stock is trading at 13 times earnings, which is only slightly higher than its peer group.
TD Bank stock: Money laundering scandal hit hard
On the other side of the coin, we have TD Bank. TD was long known as one of the top two Canadian banks, by size as well as by operational and financial performance. But last year, all of that changed.
On October 10th, U.S. regulators ordered TD Bank to pay a total of $3.1 billion in fines after the bank pled guilty in the money-laundering case that was brought against it. The bank’s reputation was hit, and certain restrictions will impact future business.
What followed was a fourth quarter in which earnings fell below analyst expectations. Also, TD’s most recent quarter saw lacklustre EPS growth of a mere 1% to $2.02. Naturally, TD Bank stock has taken a hit from all of this. In fact, it’s currently well below its 2022 highs.
Despite this, TD Bank stock is trading at 18 times earnings, which is far above its peer group, which trades at 13.8 times. As I noted earlier, Royal Bank trades at 13 times. If we compare the results of the two banks, it’s clear to see that Royal Bank is actually deserving of a higher multiple than TD.
The key thing to note here is that Royal Bank’s stock has been hit due to macro factors, such as the tariff threat and the economic fallout. By contrast, TD Bank’s troubles are company-specific, and that’s a lot more concerning.
The bottom line
The risk in TD Bank remains high in my view. Essentially, the fallout from the money laundering scandal will likely affect TD’s growth in the US. This is because the bank faces certain punitive regulatory restrictions.
Royal Bank on the other hand is excelling, and it’s attractively valued. Therefore, I think that Royal Bank is the better stock to buy right now.
