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By David Berman

Toronto-Dominion Bank (TD) received a pleasant update on its credit rating from Fitch Ratings. Sure, the rating was merely “affirmed” and the outlook was called “stable.” But the gist of the update looked very promising, given that it follows TD’s quarterly earnings report on Thursday morning, which sent TD shares down.

“Today’s rating action reflects TD’s leading franchise in Canada as well as its strong earnings performance, good asset quality, and solid capital and liquidity positions,” Fitch begins. “TD has reported consistent earnings over the last few years as the group was able to avoid significant asset quality problems during the credit crisis.”

The romance heats up even more later in the report: Fitch applauds TD for having earnings near the top of its Canadian peer group, capital ratios that compare well to global peers and its handling of troubled U.S. acquisitions, including the North American operations of Chrysler Financial.

“While TD has been an active acquirer recently, its targets have been easily integrated due to their relatively small size and their relationship to core business lines,” Fitch said.

So what does TD have to do to get an upgrade around here? According to Fitch, the bank would have to increase the profitability and scale of its U.S. operations, without threatening its risk profile. But don’t hold your breath on this one. As Fitch pointed out, TD is already one of the highest-rated banks globally – and of course, there are storm clouds on the horizon.

“On the downside, Fitch would review its current ratings if macro economic weaknesses, such as severe problems in the Canadian consumer sector or contagion from the U.S. or Eurozone, weaken the bank's overall risk profile,” Fitch said. “Similarly, downward pressure could develop if management significantly increases its risk appetite through existing operations or through aggressive acquisitions.”

Disclosure: None

Source: Fitch Really Likes Toronto-Dominion Bank