One of the biggest rivalries in corporate Canada has grown a little more heated.
For a few brief minutes on Thursday, Toronto-Dominion Bank knocked Royal Bank of Canada off its pedestal as Canada’s most valuable bank by market capitalization.
TD also temporarily took the throne as Canada’s most valuable company, reaching $70.99-billion in market value during early afternoon trading, compared with RBC’s $70.87-billion.
Though RBC reclaimed its perch only a few minutes later, the gap between the two rivals has narrowed considerably in the past year, leaving the two banks in what analysts consider a dead heat. RBC finished the day with a market capitalization of $70.54-billion, while TD closed at $69.96-billion.
For the past several years, RBC and TD have been No. 1 and No. 2 in the Canadian banking sector, with each bank watching closely the performance of its competitor.
At the start of the year, the gap between the two stood at $9.3-billion, according to one analyst. By Aug. 19, TD narrowed it to $7.4-billion, and on Aug. 26 the difference was around $5-billion. Today, it’s less than $600-million.
A disappointing third-quarter posted by RBC last week, resulting in the bank missing analysts’ estimates, coupled with stronger earnings from TD on Thursday, helped fuel the swing in market valuations.
Third-quarter profit rose 23 per cent at TD, driven by higher earnings from its network of Canadian and U.S. branches. The bank earned $1.45-billion, or $1.58 a share, compared with earnings of $1.18-billion, or $1.29 a share, a year ago. Revenue rose 13 per cent to $5.35-billion, compared with $4.74-billion.
The results beat analysts’ expectations of $1.62 a share on an adjusted basis. TD made $1.72 excluding one-time items.
An increase in TD’s quarterly dividend, up 3 per cent to 68 cents, also helped push the bank’s shares up 1.5 per cent. It was the second time in the past year the bank had boosted its payout to shareholders.
Losing the title as No. 1 bank by market valuation – albeit very briefly – is the second indignation RBC has suffered in the past year, after losing its triple-A rating from Moody’s Investors Services in December. The bond rating agency downgraded RBC one notch to double-A1 status due to concerns that its large capital markets business exposes earnings to more volatility than its peers.
The rating change meant little from an operational standpoint, but left TD as the only bank in Canada with a triple-A rating.
The last time TD could claim a higher market value than RBC was the fall of 2000. RBC has been Canada’s most valuable company by market capitalization since February, 2009 when it passed Barrick Gold Corp., which climbed to the top spot amid a heated commodities market.
Barrick now sits at No. 4, with a market capitalization of $50.39-billion, behind third-place Bank of Nova Scotia, at $58.82-billion.
Royal remains Canada’s largest bank by assets, with $726-billion under management, compared with $620-billion at TD. Total assets is usually the key measure used to determine a bank’s clout, though market capitalization is a measure of how investors value the bank.
TD’s ascendance is also reflected in the valuations investors ascribe to the shares. Two years ago RBC fetched a premium over TD, with investors willing to pay 18.5 times earnings for RBC’s stock, and only 16.7 times earnings for TD’s shares.
Today, after several quarters that have seen RBC miss earnings estimates, TD’s shares command a premium at 12.6 times earnings versus slightly less than 12 at RBC.
TD is the last of the six major banks to report earnings. Profit at its Canadian personal and commercial banking division rose 13 per cent to $954-million, driven by growth in business deposits, loans and mortgage volumes.
“This was a great quarter for TD, with truly impressive performance from our retail businesses on both sides of the border,” chief executive officer Ed Clark said in a statement.
TD’s large U.S. retail banking operations made $328-million (U.S.) in the quarter, up 21 per cent as deposit volumes, mortgages and commercial lending grew. The bank’s global wealth management division earned $147-million, up 26 per cent over a year ago.
However, net income at TD’s wholesale banking operation was noticeably weaker than the other divisions, falling 40 per cent in the quarter to $108-million. The drop came from lower trading revenue from bonds and currency exchange.
The bank’s corporate segment reported a net loss of $124-million, down from a net loss of $304-million a year ago.
Provisions for credit losses, which are the amount banks set aside to cover bad loans, were $374-million in the third quarter, compared with $343-million in the previous quarter, and $339-million a year ago.
Close: $78.60, up $1.13
Royal Bank (RY)
Close: $49.10, down $1.02