TD Bank Financial Group
The Toronto-Dominian Bank and its subsidiaries, collectively known as TD Bank Financial Group (TDBFG) is a Canadian based financial group, engaged in providing wide range of financial products and services. TD Bank Financial Group is one of the largest financial services providers in North America, providing retail and commercial banking, wealth management, and wholesales banking products and services, but increasing the interest rate and high level of consumer debt may affect the company prospects.
TD Bank is one of the seven largest banks in North America based on market capitalization as of October 2010. Its strong market position is the competitive advantage in North America. It is the second largest financial company in Canada, has the leading in market share in Canadian personal deposits market and is the second largest lender of personal loans.
Moreover, the company also stabilizes its leading market position in active portfolio management, providing investment solution to retail, high net worth and institutional clients. In order to have to strong market position, the company has a mix of traditional and non-traditional revenue streams from four business divisions: Canadian personal and commercial banking (50.7% of the total revenues in FY2010), US personal and commercial banking (23.3%), wholesale banking (14%) and wealth management (12%). The diversity in revenue streams is the effective factor for the company to improve its growth in earnings and dividend in future.
Lacking of attention to credits from 2008 to 2010 leads to the decrease in loan book quality. The quality has been decreased in gross impaired loans and net impaired loans. Gross impaired loans were C$3,456 million ($3,392.1 million) in 2010, up C$1,145 million ($1,123.8 million), or 50%, over 2009. Net impaired loans were C$2,779 million ($2,727.6 million) in 2010, compared to C$1,753 million ($1,720.6 million). Moreover, according to some reports from the company P&L, it was unable to control the operating costs such as Adjusted non-interest expenses were C$11,464 million ($11,251.9 million) in 2010, an increase of 4% compared with 2009. The increase was from the employee compensation, project-related costs, non-credit losses, and the investment in new branches. These factors can affect the decline in net income of the company over the non-interest expenses.
Expanding internationally in US is the potential way for the company to increase its operations. Starting with the joining in Banknorth Group in 2005, then the acquisition of Commerce Bancorp in March 2008 with a retail branch network of 2,000 branches, 460 locations, and close to 700 Automated Teller Machines. This combination made the company became a leading North America financial institution. In addition, the extension in the Bush tax cuts in 2010 for all income-earners and the increase in discretionary income from individuals and institutions could create additional demand for financial services in the US.
The change in interest rate policy affected financial institutions’ revenue and profit expansion possibilities. Shifting from soft to hard interest rate regime, the inflationary pressures, and the increasing interest rates could decrease the demand in financial services and expose the company’s net interest margin vulnerability in 2010. Besides that due to the increase of phishing, electronic and plastic money frauds in the North America and other developed countries, as the US is the leading country in phishing sites and check frauds. The company has the challenge of educating its customers about phishing activity and other electronic frauds in order to cut losses due to frauds.