Skip to main content

TD Bank posted a 4-per-cent increase in quarterly profit from a year earlier as gains from its U.S. bank and capital-markets business offset declining domestic retail operations.Fred Lum/The Globe and Mail

Toronto-Dominion Bank's own analyst is wondering why the lender is becoming a laggard in Canadian banking, underscoring concerns that prompted two stock downgrades.

"We're all collectively scratching our heads on why this premium domestic retail bank isn't keeping up with its peers," TD analyst Mario Mendonca asked Teri Currie, the head of Canadian personal banking, on a conference call Thursday after the company reported quarterly results.

Profit from Canadian banking rose 1.4 per cent in the third quarter, less than half the pace of the country's largest lender, Royal Bank of Canada, and a quarter that of Canadian Imperial Bank of Commerce.

TD Bank posted a 4-per-cent increase in quarterly profit from a year earlier as gains from its U.S. bank and capital-markets business offset declining domestic retail operations.

Ms. Currie told Mr. Mendonca, who rates the shares a buy, that lower interest rates, competitive pricing and the cost of funds for mortgages were to blame, along with repricing on fee-based products.

Other analysts are highlighting TD Bank's problems at home.

CIBC World Markets' Robert Sedran downgraded the stock of the Toronto-based company to the equivalent of hold from buy on Thursday.

"As much as we're heartened by the stronger U.S. performance, we expect and need better from the Canadian business relative to its peers," Mr. Sedran said in a note to clients.

Canaccord Genuity Group Inc.'s Gabriel Dechaine also cut the stock to hold, saying the Canadian personal and commercial-banking business "is falling short of peer results and the bank's own targets."

TD Bank has a medium-term objective of 7-per-cent growth for its Canadian banking division, a goal Ms. Currie reiterated Thursday.

The division is the bank's largest and generates about half the company's profit.

Weak margins – with low rates, competition and lower mortgage-backed securities funding – along with a higher tax rate and provisions "are likely to drive below-average domestic banking earnings next quarter," Mr. Mendonca wrote Friday in a note.

On Friday, TD Bank shares closed down 0.2 per cent to $57.29, on pace for a second day of declines.

TD Bank has nine buy recommendations, eight holds and one sell, according to data compiled by Bloomberg.

Analysts including Bank of Nova Scotia's Sumit Malhotra and Barclays PLC's John Aiken have suggested the bank may be easing up on Canadian growth on purpose, given concerns about sluggish economic growth and overheated housing prices.

"They're putting the brakes on domestic growth," said Mr. Aiken, who rates TD Bank stock a sell, in an interview.

"They're consciously growing slower than peers because they're worried about what's going on with the economy."

Canaccord's Mr. Dechaine also noted the discrepancy, despite his downgrade.

"To be fair, it seems odd to criticize TD for its low growth in Canadian retail banking at a time when market concerns over consumer indebtedness and late-cycle credit growth in certain segments (e.g. housing in overheated markets) are elevated," Mr. Dechaine said in his note.

"However, we also believe it is fair to compare TD's actual performance to targets it communicated to the Street."