Toronto-Dominion Bank is pointing to Russia’s invasion of Ukraine as a reason for slowing its release of loan-loss reserves built up during the COVID-19 pandemic.
On a call with analysts Thursday, TD Bank CEO Bharat Masrani said that while broad economic conditions “remain positive,” the “serious geopolitical tensions” have joined inflation, supply chain issues and labor shortages as threats to economic stability.
While the conflict in Europe did not deter Toronto-based TD Bank from forging ahead with its deal to acquire the $89.1 billion-asset First Horizon Corp. in Memphis, Tennessee, it is having some impact on how the balance sheet is being managed.
“We don’t know what the ultimate economic trajectory will be as a result of this war,” TD Bank Chief Risk Officer Ajai Bambawale said on a call with analysts Thursday. “So there is still quite a bit of uncertainty, which is why we’re releasing our reserves gradually.”
TD Bank reported about $4.9 billion in loan loss reserves (C$6.2 billion) for its fiscal first quarter that ended Jan. 31. The total has been coming down incrementally since hitting pandemic high of about $6.5 billion in the fiscal fourth quarter of 2020.
The most recent fiscal quarter’s total allowance dipped by about 2% from the previous three months, but reserves are still 40% higher than prepandemic levels.
Analysts pressed executives Thursday on why they haven’t been more aggressive in releasing more reserves.
“The main reason why we haven’t released our allowances is because there’s still a tremendous amount of uncertainty,” Bambawale said. “The sources of that uncertainty are changing.”
Lingering labor and supply chain issues, along with rising inflation had already been on the list of worries, but broader, unknown risks stemming from the West’s aggressive sanctions on Russia and the economic collapse there in recent days have blurred the bank’s outlook.
Prices for West Texas Intermediate crude, for example, had touched $116 per barrel early Thursday, which was up more than 27% since Russia began its invasion last week and the highest price since 2008 — before settling down by the end of the trading day to about $108.
Bambawale insisted that as the uncertainty subsides, the bank would release more reserves.
But, he said, “The exact timing of it is very difficult to tell.”
TD Bank reported $2.9 billion in net income for the quarter that ended Jan. 31, up roughly 16% from the same period last year.
Its U.S. retail banking business reported $806 million in net income, up 31% year over year. Revenue for its U.S. retail unit increased 6% over the previous year, driven by higher deposit volumes and fee income.
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