Toronto-Dominion Bank said Thursday its disclosure on its exposure to the troubled U.S. commercial real estate sector is in line with industry practice after a prominent financial services expert questioned why the bank uses a larger number in filings with U.S. banking regulators than in presentations to investors.
Fund manager Rob Wessel, a former analyst, pointed out in a report this week that there is a discrepancy between the amount of commercial real estate exposure TD says it has in filings to a U.S. regulator - almost $20-billion (U.S.) - and how much it has told investors in other forums - closer to $12-billion. Mr. Wessel suggested that in the filings aimed at investors, a big chunk of loans that were backed by real estate were classified as business loans.
TD was unable to respond to the report before Thursday because of a quiet period before the release of its quarterly results.
The explanation is that the bank, for the purposes of the figures it presents to investors, classifies its loans based on the industry the borrower is in. For some of the loans, real estate is collateral in case the bank needs a backup source of funds to ensure a loan is repaid. However, in the reports to the regulator, because real estate is there as collateral, they are listed as real estate loans, which leads to the higher tally.
"This is actually not news," Toronto-Dominion chief executive officer Ed Clark said on a conference call. "Our financial disclosure provides what we consider to be a more accurate representation of the risk within our portfolio. In addition to our commercial real estate portfolio, our commercial and industrial portfolio includes loans that have real estate as collateral. We assess the risk, credit risk of a borrower, based on the strength of their underlying business and its ability to repay the loan with real estate collateral representing a secondary source of repayment. As a result we classify according to the industry of the borrower."