TD Bank: Regulatory Costs, News Are Weak But Credit Stats Solid.

TD Bank (TD: A1/A/AA-) 2Q24 (3M to 30-Apr-24) results are a headline miss due to higher exceptionals, but credit stats are broadly stable and the rate of NPL formation is slowing. TD’s reputational issues aren’t helped by this morning’s warning from Canadian regulators and there’s little here to see spreads reverse their recent underperformance, we feel.

• Key credit stats: loan losses are 2bp weaker than consensus (at 47bp) and non-performers are only 1bp weaker (at 41bp of loans). The rate of NPL formation has slowed slightly in the period, too. CET1 ratio is marginally below expectations (13.4% vs. 13.5% est.). So broadly within close range of expectations.
• Revenues are around 3% better than expected but this is largely due to a big jump in trading revenues in the wholesale business – a lower quality beat. NII was only inline. Costs (ex-exceptionals) are broadly in line and loan losses close to expectations meaning underlying pre-tax profit is well over 10% ahead. However, over CAD1.2bn of exceptional costs drag stated numbers down to quite a miss.
• Outlook: the bank has identified new cost saving opportunities (total up to CAD725m p.a., from 650m) but, otherwise, there is very little forward looking here at all.

Conf call is 1300 (London time) on https://td.streamme.ca/Q22024