Thursday , October 28 2021

The strong US economy increases the benefits of TD and CIBC, but competition is increasing



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Toronto-Dominion Bank and Canadian Imperial Bank of Commerce can thank a most profitable American economy. But American banking operations are not expected to have so much growth in 2019 due to increasing competition.

TD and CIBC, both of which launched year-end profits on Thursday, have a lot of exposure to the United States after large acquisitions. Lately, the growth of the benefits of these divisions has been encouraging, especially for TD. The bank, which suffered years of anemic returns in its personal and commercial bank after the global financial crisis, saw that its annual benefits of retail banking in the United States increased 26 percent to $ 4.2 million.

Curiously, the concern now is that the US economy is doing very well. The recovery is almost a decade and inflation and wages are marking higher, which led the Federal Reserve to increase interest rates eight times in the last two years.

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Because the business is growing, the US banking market has become very competitive. "Competition has increased," said the analyst at DBRS Ltd. Robert Colangelo. "Although the United States is a very large market, it is limited to the amount of market share that banks can take, especially on the commercial side."

The executives of the two banks echoed this feeling in the conference calls on Thursday. "Certainly it was competitive" when attracting commercial deposits, said Greg Braca, head of the American banking group at TD.

"We came to a threshold," said Larry Richman, head of the United States region for CIBC. "While rates are rising, customers who have excess money want to pay for it."

Commercial and commercial banks make money attracting low-cost deposits and lend this money at higher rates. Lately, US banks have been able to charge more on loan, because interest rates have increased.

But the market to attract deposits is also becoming more aggressive, which will force banks to pay deposits, slowing the growth of the credit margin.

Clouds are also formed on the economy of the United States. In a report released Thursday, the credit rating agency Standard & Poor's said "the risk of recession for the United States has increased, and growth is likely to rise even if the US tariff dispute does not intensify in a trade war."

S & P said that the probabilities of a slowdown in the next 12 months are from 15% to 20%, compared to 10% to 15% of the previous forecast.

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Despite changes in the United States, it is still expected that total revenues in both banks will be higher next year. The TD is particularly optimistic, with the CEO Bharat Masrani, which provides for the total growth of profits from 7% to 10% in the year 2019.

CIBC is slightly less bullish, awaiting an expansion of 5 percent to 10 percent. However, the bank is optimistic about the quality of your loan book. "Although they continue to be potential direct winds, because it feels like we entered the back of the economic cycle, we are still confident in our strong subscription practices and the quality of our credit portfolios," said Laura Dottori-Attanasio's chief risk. a conference call.

Investors had reactions diverging to the benefits announced on Thursday. TD shares were relatively flat at the end of the trading day, closing at $ 73.48, while CIBC shares dropped 3% to $ 112.46.

For the full fiscal year ending on October 31, the TD recorded a net profit of 11,300 million dollars, almost 8% higher than the fiscal 2017, while the annual benefit of CIBC rose to 5,200 million dollars, one 12 percent over the previous year.

Earlier this week, TD and CIBC announced the details of their participation in the acquisition of the Aeroplan fidelity rewards program. TD is strongly committed to Aeroplan, committing to a value of US $ 1 billion of advance payments and future expenses as the main financial partner. Your contract with Air Canada will begin in 2020 and will last until 2030.

CIBC will be a secondary partner of the new agreement and agreed to pay in total 292 million dollars to participate.

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