EUR 850.00 For Business Accounts Only

Morningstar | Toronto-Dominion Remains One of the Premier Canadian Bank Franchises, Even With Slow Start to 2019

Toronto-Dominion is one of the two largest banks in Canada by assets and one of six that collectively hold roughly 90% of the nation's banking deposits. The bank derives approximately 60% of its revenue from Canada and 35% from the United States, with the rest from other countries. Toronto-Dominion has done an admirable job of focusing on its Canadian retail operations and growing into number-one or -two market share for most key products in this segment. The bank also has number-two market share for business banking in Canada. With roughly CAD 390 billion in assets under management, top-three dealer status in Canada, and as the number-one card issuer in Canada, Toronto-Dominion should remain one of the dominant Canadian banks for years to come.Toronto-Dominion has also established a significant presence in the U.S. by having the most branches in the U.S. among Canadian banks as well as a 42% ownership stake in TD Ameritrade. While we do like the higher exposure to more growth in the U.S., it has much lower returns on equity for banks on average than Canada, partially because the bank paid up for its acquisitions of these segments. As the U.S. segment grows, we expect returns on equity to be further pressured. We also like Toronto-Dominion’s positioning as a major discount-brokerage player because we believe this industry is ripe for growth as investors seek out lower-cost alternatives, and the bank could leverage its knowledge of the industry in Canada, where do-it-yourself investors have a harder time finding competitively priced platforms.The bank has taken a number of charges (such as integration charges, or the latest charge to remain the main bank for the Air Canada portfolio) related to its acquired credit card portfolios. However, we expect that as these card relationships mature, the bank should be well-positioned in what is a higher-return business, if managed well. We expect double-digit growth in TD Ameritrade, stable strength in domestic banking operations, good credit quality management, and continued expense control to drive consistent returns on equity and mid- to upper-single-digit earnings growth.