Toronto-Dominion Bank and Canadian Customs Bank may thank the hot US economy for greater profits. However, large US bank operations are not expected in 2019 due to the growing market competition.
TD and CIBC, who posted earnings at the end of the year, have large exposures to the United States after major acquisitions. Recently, the growth of profits from these departments has been encouraging – especially for TD. The bank, which has spent years on anemic return to its US and business banks after the global financial crisis, saw annual profits from US retail banking, from 26 percent to $ 4.2 billion.
It is a strange concern that the US economy is too good. Recuperation is nearly ten years old and inflation and wages are more ticking, prompting Federal Reserve to raise interest rates eight times over the past two years.
As the job grows, the US banking market has become extremely competitive. "Competition has increased," analyst DBRS Ltd. said. Robert Colangelo. "Although the United States is a very large market, it is limited by the market share that banks can take – especially on the commercial side."
The executives of both banks echoed this stance in conference calls on Thursday. "It was certainly competitive" when it attracted commercial deposits, said Greg Braca, head of the US banking group at TD.
"We've reached the threshold," said Larry Richman, head of the US region for CIBC. "As the rates increase, clients who have excess money want to pay for it."
Retail and business banks make money by attracting low-cost deposits and lending this money at higher rates. In recent years, US banks may have to charge more for loans because interest rates have risen.
But the deposit market also becomes more aggressive, which will force banks to pay, slowing down their growth.
Several clouds also form over the US economy. In a report Thursday, the rating agency Standard & Poor's pointed out that "the risk of a US recession has increased, and growth is likely to slow even if the US and Chinese customs dispute does not turn into a trade war."
S & P has stated that the prospects for falling in the next 12 months are 15 to 20 percent, compared with 10 to 15 percent in the previous forecast.
Despite shifts in the United States, total earnings on both banks are still expected to be higher next year. TD is particularly optimistic, and CEO Bharat Masrani predicts a growth in overall earnings of 7 to 10 percent in Fiscal 2019.
The CIBC is somewhat milder, expecting a growth of 5 to 10 percent. However, the bank remains optimistic about the quality of its credit book. "Although there is still potential wind, as we feel like entering the later part of the economic cycle, we remain confident in our strong insurance terms and quality of our loan portfolio," said chief risk officer Laura Dottori-Attanasio. conference call.
Investors had divergent reaction to profit announced on Thursday. TD stocks were relatively flat until trading day ending at $ 73.48, while CIBC shares fell 3 percent to $ 112.46.
For the entire fiscal year, which ended on October 31, TD had a net income of $ 11.3 billion, almost 8 percent higher than fiscal 2017, while CIBC's annual profit rose to $ 5.2 billion, which is 12 percent more than in the previous year.
Earlier this week, TD and CIBC released details of their involvement in Air Canada's Airsoft Awards Award Program. TD is having a hard time with Airplane and is committed to first class payments and future costs as a major financial partner. His contract with Air Canada will begin in 2020 and will last until 2030.
CIBC will be a secondary partner in the new arrangement, and agrees to pay a total of $ 292 million to participate.