Toronto-Dominion Bank (TD) may be taking a C$500-million charge in the fourth quarter, but it remains the safest bet among Canadian banks heading into the credit storm, Dundee Securities analyst John Aiken said.
He told clients:
While additional losses for TD cannot be discounted at this stage (although accounting changes help on that front), we believe that the core earnings at the bank, particularly the success in its retail banking operations, will hold its earnings and valuations in good stead relative to its competitors.
Mr. Aiken expects core cash earnings for TD will be slightly above C$1.30 per share, which is below the consensus. This could be a result of company-specific issues, which should be revealed when its full financials come out on December 4, or could signal weaker-than-expected earnings for the sector as a whole.
Banks typically clean up their balance sheets at the end of the year. So while charges are never good news, Mr. Aiken said they could moderate going forward if banks are conservative enough and capital markets show some signs of stabilization.