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TD, CIBC report massive profit drops amid COVID-19

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TD Bank Group and the Canadian Imperial Bank of Commerce have fallen in line with the rest of Canada’s Big Six financial institutions in reporting significant drops in profit and increases in their provisions for credit losses amid the novel coronavirus pandemic.

TD revealed Thursday that its second-quarter profit slipped to nearly $1.52 billion or 80 cents per diluted share, down from $3.17 billion or $1.70 per diluted share a year ago. Analysts on average had expected an adjusted profit of 89 cents per share for the period ended April 30, according to financial markets data firm Refinitiv. On an adjusted basis, the bank earned 85 cents per share in its most recent quarter, down from $1.75 in the same quarter last year.

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“This quarter we went through tremendous headwinds…as we absorbed a substantial increase in provisions for performing loans as well as market pressure from the steep drop in interest rates,” said chief executive Bharat Masrani on a call with analysts. “A tough quarter, no question, but one that demonstrates the resilience of our model and our strategy.”

The fluctuations matched the patterns of many other banks that reported earnings earlier in the week and Canadian Imperial Bank of Commerce who hosted its quarterly call hours before TD.

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CIBC shared that it earned $392 million or 83 cents per share for in its second quarter, down from a profit of $1.35 billion or $2.95 per share in the same quarter last year. On an adjusted basis, it reported a profit of 94 cents per share, a drop from $2.97 per share during the same period last year.

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Analysts on average had expected an adjusted profit of $1.58 per share for the quarter, according to financial markets data firm Refinitiv.

“This is our moment of truth,” said chief executive Victor Dodig on a call with analysts.

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“Economic headwinds are likely to be here for the near term,” he said. “While there are many unknowns related to the pandemic, its effect on the economy and the path to recovery, what is certain is our strong capital liquidity will allow us to withstand ongoing stress.”

The banks were largely weighed down by payment deferral programs they rolled to give relief to Canadians struggling with financial hardships.

Their provisions for credit losses were much higher than in past quarters. TD’s soared to nearly $3.22 billion from $633 million during the same period a year ago, while CIBC put aside $1.41 billion, up from the $255 million it reported in its previous second quarter.

All of Canada’s big banks have announced dramatic increases in their provisions for credit losses due to the pandemic.

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Some of their leaders have warned the pandemic is “not a garden-variety recession” and said the economy is scraping “the bottom of the barrel.” They have hinted that their provisions for credit losses could grow – a prediction some analysts have made as they forecast much uncertainty and further declines in future quarters.

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Barclays analyst John Aiken said in a note to investors Thursday that CIBC opted to take significant reserves up front and that should be viewed positively.

“However, given the lukewarm reception that Royal received when it took a similar strategy, we are not certain that the implications will be immediately rewarded by the market,” he said.

Solid allowances and a strong capital ratio have meant the relative outlook for CIBC appears to have improved.

He noticed TD was showing some “underlying resiliency” in its business model as well as solid contributions from its capital markets and retail brokerage exposures.

“TD appears to have taken a more conservative approach to provisioning than the initial banks reporting,” he said. “While we would expect TD to benefit from the relative strength of its earnings, we may also see the market potentially take a revisionist view to the banks that may not have been arguably as conservative in their approach to the outlook for credit.”