Q4 2019 Earnings Call
All participants you meeting is ready to begin good afternoon, ladies and gentlemen will come to TD Bank groups Q4, 2019 conference call.
I'd now like to turn the meeting over to MS cheering them money head of Investor Relations. Please go ahead and this money.
Thank you operator, good afternoon, and welcome to TD Bank groups fourth quarter 2019 investor presentation.
We will begin today's presentation with remarks from there and that's really need to bank CEO after which relies on at the bank CFO will present, our fourth quarter operating result.
I chip on the wireless Chief Risk Officer will then offer comments on credit quality after which we will invite questions from prequalified analysts and investors on the phone.
Also present today to answer your questions are Terry Curry group had Canadian personal banking, Greg Braca, President and CEO TD Bank America's most convenient bank and Bob Dorrance group had wholesale banking.
Please turn to slide two.
At this time I would like to caution or listeners that this presentation contains forward looking statements that there are risks that actual results could differ materially from what is discussed and that certain material factors or assumptions are applied in making these forward looking statement.
Any forward looking statements contained in this presentation represent abusive management and our presented for the purpose of assisting the banks shareholders and analysts in understanding the bank financial position objectives in priorities and anticipated financial performance.
Forward looking statements may not be appropriate for other purposes.
I would also like to remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results to assess each of its business isn't to measure over <unk> performance.
The bank believes that adjusted results provide readers with a better understanding of how management views. The banks performance art, we'll be referring to adjusted results in his remarks.
Additional information on items of note the banks reported results and factors and assumptions related to forward looking information are all available in our 2019, Mdna and fourth quarter 2019 earnings news release.
With that let me turn the presentation over to parent.
Thank you Julien and thank everyone for joining us today.
2019 was a good year for TD, we continued to add volumes in our retail segments, winning more customers and taking shared with the differentiated customer experience.
We made further progress in our wholesale banking U.S. dollar strategy growing the corporate and investment banking and global markets businesses.
And we continue to invest it up people and our capabilities to meet customers' evolving needs.
Well, we accomplished much the operating environment was challenging marked by lower interest rates wallet that markets and normalizing grid credit conditions from historically low levels, resulting in more modest earnings any B.S. growth.
So 2019 earnings wasn't a half billion dollars and Dps, so $6.69 were up 3% from the prior year.
And do 40 bps.
$1.59 was down 2% year over year.
Let me elaborate on the main factors that affected our results this quarter.
First.
Declining rates and heightened macro concerns wanting to a more subdued outlook for industry revenue growth, we took some restructuring charges this quarter.
We are accelerating ongoing efforts to modernize our operations and improve our efficiency.
The charges, which were booked in each of our segments total six cents Oh VBS.
Second why did we otherwise it a very good performance in our wholesale bank revenues were reduced by derivative valuation charges, which areas will discuss.
Good well be Seattle was within our expectations the ongoing normalization of provisions for credit losses, clearly weighed on earnings growth this quarter and for the year as a whole.
Overall EPS growth would 2019 was more modest we stayed focused.
Well no long term strategy and I feel good about what we accomplished this year.
We executed well on our enterprise priorities continuing to serve our customers in blind within our risk appetite.
We generated consistent organic capital ending the year with a strong C.D. one ratio of 12.1% even after the repurchase of 30 million common shares.
And we created significant value for shareholders, increasing our dividend paid by 11% on a full year bases and delivering above average total shareholder return for the three five and 10 year periods.
We achieved these good results, we're positioning ourselves for future success.
All year long I'd been shedding examples of forward focus investments in more frontline advisors support supported by enhance education and training to give our people the capabilities they need to help our customers feel more confident about their finances in new platforms, and then to end journeys domain.
Customers and colleagues lives easier in data and analytics that deliver better insights and create new sources of value for our customers and our business and in state of the Arctic knowledge is systems and architecture to enhance the security of our operations.
And transform the way we do business.
In October we opened the de fusions and.
Multi disciplinary agile workspace in Toronto that will strengthen our ability to the deck and respond to cyber threats.
The latest addition to a global support network, we put in place focused on protecting our assets safeguarding our customers privacy and recruiting and developing the next generation of experts in this critical field.
This quarter, we launched its first in Canada credit card feature that gets card holders the ability to temporarily blog any in person international charges through the de de App.
And we are leveraging their sixs predictive AI capabilities and a de de hoax program identify customers, who may be facing financial hardship and reach out and proactive advice and solutions.
There's a digital evolution policies it'll continue to be informed by a commitment to develop industry best practices for the use of powerful new AI and machine learning technologies as we discuss recent responsible <unk> board.
I'm proud of the discipline choices, we've made guided by a one de strategy to drive continued leadership and innovation and customer experience at the enterprise level and in each of our businesses, Let me turn to them now.
A Canadian retail segment earned $7.4 billion in 2019 up 3% from a year ago, we strengthened our market leading position and keep Roddick lines and took advantage of solid topline growth to fund strategic investments.
Continued a journey of distribution transformation through our future ready branch strategy and digital homeowner journey and the launch this quarter or D.D., we knew that which gives Canadian customers a personalized digital digital car financing experience that is seamless simple and convenient.
And well do the asset management continued its track record of investment excellence with seven definitive Lipper awards, including recognition in the fixed income balanced equity and eat D.F. categories.
Also expanded our product capabilities with the launch of 16, NDS and several real estate alternative investment solutions for a high net worth and institutional clients.
And we successfully upgraded a client servicing it underwriting insurance platform.
Turning to the U.S.U.S. retail being performed well in 2019 with earnings up 6%. We continued to drive beer leading growth in non interest bearing a gums and anchor products that reflects our focus in acquiring high quality primary customers.
So similar story with a small business banking strategy, where weve amplified our community centric model with investments in enhanced data insights in infrastructure like the digital next generation platform. We introduced earlier this year.
Customers are responding by bringing us more of their business with de ranking number one in SB, a lending and domain to Florida footprint digging dub Swat and customer satisfaction for small business banking in the south region by JD power.
We also continued to make our business more efficient achieving positive operating leverage this this year and reducing our efficiency ratio by another 100 basis points.
At the segment level with another strong contribution from TD Ameritrade you as retail earnings increased 10% for the year or 14% in Canadian dollars. The just shy of Canadian $5 billion and we were delighted last week, the announced that support for the acquisition of video marriage.
Great by Charles Schwab. This is a transformative deal that would deliver significant value for d. and give us an ownership stake in the most innovative and highly regarded investment investment firms in the U.S.
Rounding out the picture a wholesale bank or 608 million this year bookended by market volatility in Q1, and derivative valuation and restructuring charges. This quarter well. This was clearly a disappointing result, I'm pleased with the progress we're making across our business.
We increased our leadership position in the Canadian market occupying the number one spot for M&A announced and completed syndicated loans and government that underwriting and the number two spot for corporate debt underwriting and equity options block trading.
We also built on our leadership position in domestic emanated with TD securities advising on several marquee transactions, including this quarter's 5.2 billion dollar recapitalization of Garda will security the largest by a privately owned Canadian company.
We made strides with a U.S. dollar strategy Onboarding 60, new corporate clients, adding senior leaders to support our technology Bauer and utilities and sponsored lines, a leading 72 U.S. investment grade corporate bond deals.
And we were active in the green and sustainability bonds space, a growing segment of the market that is well aligned with the being strong E as GE profile and commitment to support the transition to the low carbon economy of the future.
Looking ahead, we expect the operating environment to remain challenging with continued geopolitical and trade tensions further normalization of credit conditions, where historically low levels and late cycle concerns keeping interest rates under pressure and financial markets on edge.
We also feel the effects of the move we would also feel the effects of the move by U.S. This gone brokers to eliminate online equity trading commissions, which will impact our equity pickup from TD ameritrade.
Overall, why we will continue to execute on our strategy guided by our medium term objectives, we expect dps growth to be more moderate again next year.
Despite these uncertainties the fundamentals of our business remains strong and I'm confident that we can continue leveraging the investments we made to add customers increased volumes continued to grow our business.
As always we remain constant in upper Buzz enriched the lives of our customers colleagues and communities one where we are supporting our colleagues development is by empowering them to contribute to their communities and our customers through the launch of the TD ready commitment that toward.
The network enables colleagues Madrid track their personal goals and engage in meaningful volunteer activities, including our recently announced initiative do you mind power, which bears nonprofit organizations with a dedicated team of skill DT data and analytics employees will collaborate to help them leverage data.
And grow their community in bag.
This is just one of many purpose driven initiatives. We've launched in 19 in 2019, you can find more highlights in our annual report I invite you to read my letter to shareholders and the pages that accompanied which presented strategy in more detail and the transformative investments it is enabling.
To close I'm proud of what we achieved in 2019, I'd like to thing or more than 85000 colleagues for their hard work and dedication to our vision purpose and strategy our customers for the opportunity to serve them and our shareholders for the confidence they're placing those.
I look forward to another year of accomplishments in 2020 .
With that I'll turn things over Rias [noise].
Thank you bars and good afternoon, everyone. Please turn to slide seven.
In 2019, a bank reported earnings up $11.7 billion and S $6.25 up 3% and 4% respectively.
Adjusted earnings or $12.5 billion, and adjusted EPS was $6.69 up 3% for the year.
Revenue increased 6%, reflecting volume growth and higher margins in our retail businesses.
Higher insurance and wealth fee based revenue and the impact of FX translation.
Partially offset by lower trading related revenue in wholesale.
Expenses increased 9% on reported basis, reflecting charges related to air Canada, Greystone and this quarter's restructuring.
PCL increased 22%, primarily reflecting higher PCL into consumer and commercial lending portfolios and volume girls.
Canadian retail and U.S. retail delivered net income of $6.9 billion and $5 billion for the year, respectively, and wholesale report at approximately $600 million in there.
Please turn to slide eight.
For the fourth quarter at the Bank reported earnings of $2.9 billion and he'd be S. dollar 54.
Adjusted earnings for $2.9 billion, and adjusted <unk> dollar 59 down 2%.
Revenue increased 2%.
Revisions for credit losses increased 36% quarter over quarter expenses increased 3%, including $154 million of restructuring charges.
Please turn to slide nine.
Canadian retail net income was $1.7 billion level with the prior year on an adjusted basis net income increased 2%.
Revenue increased by 5%, primarily reflecting volume growth and higher insurance and wealth fee based revenue.
Average loans and deposits increased 5% year over year, reflecting growth in both personal and business volumes and wealth assets grew 14% or 9% excluding greystone.
Margin was 2.96% consistent with the prior quarter.
Total PCL increased 27% quarter over quarter with increases in impaired and performing piece.
Got to be feel as an annualize percentage of credit volume was 37 basis points up eight basis points quarter over quarter.
Expenses increased 4%, reflecting higher cost supporting business growth and charges related to the acquisition of greystone.
On an adjusted basis expenses were 3% and we delivered 200 basis points of operating leverage.
Please turn to slide 10.
You asked retail net income was U.S. $900 million up 5% year over year on a reported basis and 3% on an adjusted basis.
You X retail bank reported earnings were flat year over year.
Average loan volumes increased 7% year over year, reflecting growth in the personal and business customer segments.
Deposit volumes, excluding a TD ameritrade sweep deposits were up 5%, including 4% growth in core consumer checking accounts.
Net interest margin was 3.18% down nine basis points sequentially, primarily due to lower deposit margins and largely in line with U.S. peers.
We expect margins to continue trending downwards, reflecting the impact of the recent cedrik.
Total PCL, including only the banks contractual portion of credit losses in the strategic cards portfolio was U.S. $223 million.
17% sequentially as an increase in impaired PCL was partially offset by decrease in performing yeah.
The U.S. retail net PCL ratio was 55 basis points up seven basis points from last quarter.
Expenses were flat year over year, reflecting restructuring charges, a few west $52 million and business volume growth, partially offset primarily by productivity savings.
Contribution from Tt's investment can TD ameritrade increased the U.S. $219 million and segment, our OE was 11.8%.
Please turn to slide 11.
Net income for wholesale was $160 million down 44% year over year, reflecting lower revenue higher expenses and higher PCL.
Revenue decreased 9%, primarily reflecting derivative valuation charges.
This quarter, we implemented a new derivative valuation system and related methodologies, which will enhance our ability to manage risk and pricing.
Expenses or $600 million, reflecting restructuring charges of $23 million higher securities lending fees and software costs and the impact of FX translation, partially offset by lower variable compensation.
Please turn to slide 12.
The corporate segment reported a net loss of $240 million in the quarter compared to our net loss of $181 million into fourth quarter last year.
The increase in reported net loss was primarily attributable to lower contribution from treasury items and non controlling interests, partially offset by lower net corporate expenses.
Net corporate expenses decreased largely reflecting lower net pension expenses in the current quarter, partially offset by restructuring charges or $51 million.
Please turn to slide 13.
Our common equity tier one ratio ended the quarter at 12.1% consistent with the prior quarter.
We had strong organic capital generation this quarter, we try to 32 basis points for our capital position.
This was mostly offset by the repurchase of over 8 million common shares in the quarter as well as growth in our W.A., an actuarial losses on employee pension funds.
Our leverage ratio was 4.0% and our liquidity coverage ratio was 133%.
During the quarter the board approved the launch of a new and see IB to repurchase up to an additional 30 million common shares subject to regulatory approval.
Looking ahead to Q1 2020 , we expect implementation of five forest 16, and the revised securitization framework through have a 28 basis points impact on C. tier one capital enlighten inline with the guidance, we provided last quarter.
We expect impact can be mitigated by internal capital generation.
I'll now turn the call over to project.
Thank you Rias and good afternoon, everyone overall credit quality was good across the banks portfolios in fiscal 19 and credit losses was inline with expectations.
Please turn to slide 14.
Gross impaired loan formations were $1.5 billion or 22 basis points stable quarter over quarter and you're over here.
Please turn to slide 15.
Gross impaired loans ended the year $3 billion 43 basis points.
Stable quarter over quarter, and down four basis points year over year.
Please turn to slide 16.
Recall that our presentation reports PCL ratio is both gross and net of the partners shales, the U.S. straight to strategic got credit losses.
We remind you that credit losses recorded in the corporate segment up fully absorbed by our partners and do not impact the bank's net income.
The banks Pcls in the quarter, <unk> $893 million or 51 basis points up 13 basis points quarter over quarter, and up 10 basis points year over year.
Quarter over quarter increase reflects the U.S. credit card and auto portfolios largely due to typical seasonal trends.
As experienced in previous years.
In the U.S. credit card in auto portfolios typically rise in the fourth and first quarters due to back to school and holiday shopping.
Balances and delinquencies historically degrees in the second and third quarters as customers catch up with that payments.
The balance of the quarter over quarter PCL increase is largely reflected in the Canadian retail and wholesale segments, primarily due to credit migration.
Please turn to slide 17.
The banks impact.
Please $151 million quarter over quarter.
Largely related to the U.S. credit card and auto portfolios, reflecting seasonal trends.
And credit migration in the Canadian commercial and auto portfolios.
Performing PCL increased $78 million quarter over quarter.
Driven by the Canadian commercial Canadian cards, and wholesale lending portfolios, primarily due to credit migration.
And seasonal trends in the U.S. credit card and auto portfolios, partially offset by the impact of prior quarter parameter updates in the consumer lending portfolios.
For 2019, the full year rate is 45 basis points up six basis points from 2018.
The increase in total Bcl in 2019, largely reflects ongoing credit normalization in the Canadian retail and wholesale segments from prior years six at the low levels and what are your growth across the banks portfolios.
In summary, we've had good credit quality across the banks portfolios in 2019.
And are well positioned for continued growth in our lending portfolios.
Looking to the year ahead, the period of cyclical low loss rates are likely behind us.
Subject to quarterly seasonal fluctuations and provided economic conditions remain supportive I expect fiscal 2020 USIO to be in the neighborhood 50 basis points.
With that operator, we're now ready to begin the QNX session.
Thank you.
We'll take questions from the telephone lines. If you have a question any easing of speakerphone. Please keep to have said before my cash collection you have a question. Please press star one on your telephone keypad.
Any time you wish to come so your question. Please press the pound sign.
Please press star one at this time, if you have a question.
And the first question is from Ebrahim Poonawala from Bank of America. Please go ahead.
Good afternoon.
I guess.
You could start on the margin outlook going you talked about the fed cuts impacting the U.S. margin. If you can give us a sense of the cadence of incremental margin compression that you expect next quarter and if the fed is truly done for the time being is that when do you expect the U.S. margin to begin stabilizing or do you expect.
Continue drift lower.
For him. Thank you. This is Greg Braca. So Ah. Thanks for the question I just start by saying as you know we've had a three rate cuts starting in July and September and then at the end of October 25 basis points, each and Ah you know over the next quarter, you generally expect that to margins would.
Continue to trend lower given the fact that the last caught just occurred at the last day of the fiscal year end.
On October 31st and the second rate cost only had the effect of being in the fourth quarter.
For half the quarter.
So all things being equal obviously, there's a lot that goes into this including the mix of the business and what the long into the rate does and on off rates and things that we've talked about before but given those three rate cuts and certainly to impacting the Q4 to what would be Q1, you generally see a glide path to lower margins in Q.
One.
Got it.
And if I me one more just in terms of capital. It sounds like you should be able to absorb the I fysixteen impact clinically.
Easily in the next quarter.
As we think about capital deployment in mid.
I'm glad I can be a Medicaid front.
I'll be talking bar I can tell me if as you think about Oh, no M&A opportunities in the U.S. beat within the northeast within new banking footprint or on non bank M&A.
No change or Abraham you know as we've said the previously.
We look at capital deployment on a holistic bases. Obviously, you know we want to support the strategies. We've laid out that is organic growth. The R.W. grow that follows we want to make sure. We also have capital flexibility should we need to build out any capabilities that are more appropriately done through acquisitions, rather than you know trend.
Organic new build them I think greystone falls into that category quite nicely. We also said that in a will always be.
You know make sure that view of capital flexibility issued some opportunities present themselves and you know you've seen the Ah you know TD four disappeared in those transactions in a there's so many well the past few years that it turned out to be terrific for us.
And finally, yes, we are.
Interested in acquisitions, we've said the southeast is particularly attractive to us given you know the potential there in the U.S.
We've also said and what we would look at others, a that makes sense from a strategic enough financial perspective. So nothing has changed from that perspective, and you know I'm sure with.
The type of environment, we're seeing and what we're calling for that does which is challenging that certainly you know they give us opportunities more so than it might have previously.
So we will keenly watch this space and should anything compelling a.
Present itself will be looking at it seriously.
Understood. Thank you.
Thank you.
Your next question is from many Grandma from Cormark Securities.
Hi, Good afternoon question on the a restructuring charge just wondering about a what expense savings you expect to recognize.
From that restructuring and.
For for 2020 and 2021.
Many it's sad realize a as you would have noted in our sup back out over the course of 2019, we've added almost 3500, Nevsky A's and a hefty ease in various.
Frontline and ER technology projects and corporate functions.
End of businesses that do from time to time and <unk> take the opportunity to look at ways of optimizing how we work modernizing our operations and not improving our efficiency.
If you look at the expense that we have reported over the last five quarters or excluding the effects of restructuring charges. The expenses have been relatively stable.
I think you shouldn't I look at this more and more as an optimization exercise, we had been or within that context stuff, a a growing bank and not necessarily driven to ER compared to create a.
Additional productivity.
Got it and then just in terms of the charge related to the derivative systems upgrade just wondering if there's any revenue you list that you expect from that change you mentioned better pricing. So I'm wondering if there's a benefit that you see from that that will be a material.
On a noticeable.
Hi, Matt, It's a Bob Dorrance I think.
Hi, better pricing, what we're talking about as fast or pricing being able to <unk> respond more quickly.
I think the benefit that we will achieve because we'll have a real time.
Mark to market of the portfolio and all the various.
Parameters in what is a complex portfolio is the ability to hedge the portfolio better.
So the expectation is that we work with this system over the next year that Oh, we'll we'll be able to.
Reduce the volatility that we have experience and.
Mark in the book to market once a month.
So just as a follow up is there isn't going to be observable. It on your in your results. This kind of a upgrade or is it more just.
Sort of behind the scenes no I think we'll wait and see and how that plays out.
Thank you.
Thank you and the next question is from Gabriel Shane from National Bank Financial. Please go ahead.
Good afternoon, just want to ask about your risk appetite.
Merge and coming down we got a peafiel ratios are normalizing and.
No.
Does that affect your risk appetite at all in a couple of years ago, you were talking about expanding fairly a ambitiously on the unsecured personal lending for use in Canada has that changed at all and.
What would need to happen freedom.
Maybe.
Yeah. Its RJ affects the questions. So let me start I think you're aware on risk appetite statement is a principles based risk appetite statement.
But it is also informed by all the stress testing work that we do and quite frankly risk appetite is not something that we keep changing so there's got to be something significant has to happen for us to want to change our risk appetites, we're not changing high risk appetite, having said that if there are opportunities that are within our risk.
Appetite like I believe personal lending is we will certainly you know explore that so no change in risk appetite, but there are enough opportunities for us that I'll within risk out, but then maybe I'll turn it over to carry for a few comments. Thanks, Dave maybe I would just add and there are number there is as we've talked about before where we have embedded growth opportunity.
Well within our risk policies and our risk appetite you cited unsecured personal lending we still have the he lock hybrid market share in fourth place, where we have the opportunity and continue to.
Business with our own customers.
In pulse business in the business bank, there are geographies, where we're continuing to add bankers, where we have opportunity and industry segments, where we can do more so definitely we're open for business and growing well within those risk policy.
How about the glass.
Oh perspective, it's easy to go up or down in the bumps food, but.
Rates are down a lot but for margins Regal.
A lot of income, but from a credit risk standpoint, but should the help right.
Yes, it's a G.I. I think if rates come down at some point that will help credit, but it could take some time.
Oh, Okay, who believe lower rates in the longer run could help credit yes.
Thank them Oh happy holidays.
It is well Gabe this is better and just to add something you know.
And then Terry coveted off well I mean risk appetite is not something that is fleeting or changing you know quarter by quarter.
It is very principles bases as Jay noted and something that we dig very seriously and you know within our risk. After that you know the size of our bank the scale of our bank and you know when we say we want to grow certain parts of our business. It is not least of indications in one quarter or two quarters. It is a blend it is a long term.
Glenn and we executed against that plan of course would be adaptable should there be a fundamental change in the environment, but you should not expect from TV a knee jerk reaction in changing a this guy but that because the one but the goal of water get one indication.
Yeah, I'm gonna have to rewrite, but such amount just give us [laughter].
[laughter].
Operator, I think right next question.
Thank you once again, please press star one on your telephone keypad. If you have a question.
And the next question is from Sumit Malhotra from Scotia Capital. Please go ahead.
Thank you good afternoon, and just want to a pick up with or without you. Please.
Going from 45 basis points to 50 for bank your size, it's not it's not the biggest deal in the world, but I just wanted to.
Digging a little bit since you're giving us such a specific forecast a in and around that range for fruit 2020, I mean, when I look at some of the underlying metrics in credit for your bag and there's a lot of things can move around but your gross impaired loan balance hasn't really moved that much for for a few quarters, you're formations have been relatively well.
Contained and to the extent of these are some of the.
The first factors, we look at they seem to be okay. What parts of the portfolio. You. Your portfolio do you look I did say this is a portion of the book that we can reasonably expect loss rates to my grid higher in the near term.
Well. Thanks, Thanks for the questions. So let me tell you how I get to the neighborhood of 50 basis points I'm basically assuming that.
Certain portfolios, which I believe we're not yet operating has normalized levels.
We'll continue to normalize and in my mind at three so Canadian retail is one of them like if you look at Canadian retail three of the last four quarters. We operated between 25 to 30 beeps to me that cyclical low and for the full year with 31 so.
I expect that to continue to normalize the second book is wholesale like if you look at wholesale losses and I believe in the first three quarters is like $2 million. So if I look out like I think wholesale with continued also gradually normalize and it took book is U.S. commercials. So if I look at US commercial you at all.
Said, no or very little losses in that book for a few years. So I am assuming because were late in the cycle that we've continued to see normalization in that portfolio. So if I look at all three portfolios.
Thats, what kind of gets me.
To a number closer to 50.
And I should also clarify that from our economic perspective, I'm generally assuming stable economic conditions <unk> consistent with our disclosures.
Well, that's very specific and I appreciate the because when we go one step further here for example, you're right. Your wholesale provision is higher this quarter, but the bulk of that came from.
The performing provision and when I look at TD. The last two years that we've been under the new standard your provisions on the performing portion of the book have been five to six basis points.
Respectively.
And I think in every quarter.
Bank has.
Slide and actual provision in in the performing in the stage one in stage, two buckets, which hasn't been the case for for all of your peers I know there's different.
Approaches to this it was different setup costs across the sector.
Yeah. This is a I'm going to ask wouldn't give us simple answer to something that's a complex question, but what do you think it is that your bank has been so consistent in having provisions in the performing portfolio and that hasn't necessarily been the case across the group.
I can't speak to my peers, but I can certainly tell you what's occurring at TD. So first lets ground ourself and what are the drivers are performing PCL one its while you do its credit migration three its parameter updates and for its macro economic changes. So if I look at our.
Allowances and this is all disclosed in the allowance tables.
Our allowance year over year went up by $378 million.
Off that.
Forming is actually 399 million and let me just explain that to you stage. One is $237 million. So what that's telling you is most of allowance build is why did you and some of it is some of that is also parameter updates. We then have $162 million.
In stage two.
That is partly credit migration.
Partly parameter updates so the migration some of it is occurring in Canadian commercial you know, there's a bit in Canadian cards, but a big part of it is actually parameter updates as a bidding us cards and there's a bit in wholesale.
Then if I turn to stage three stage three increase for US is only $61 million. So which tells you like we've actually built a stage three allowances in the past and the offset to that 82 million in a CIO debt securities.
I hope that helps but what is volume is this the biggest storing here.
No and I'll stop there I guess the thing is volume.
And in of itself, we would expect the the dollar amount or provisions to look to rise and not necessarily the.
The ratio I guess when I look at you guys you have provision so much more than you charged off your your allowances will continue to rise. So it is.
Somewhat surprising to me and a lot of these quarters that we see your your your build continue at that pace, but.
I think you're saying to me volume is part of it but perhaps some of the a parameter updates you're applying or more conservative than we're seeing across the group.
That's more of a statement on my part so Oh I will leave it there and I. Thank you Phil.
Thanks.
Thank you.
And the next question is from Robert Citronella from CRT Capital markets. Please go ahead hi, good afternoon, just first quickly a point of clarification I'd say, that's that 50 basis point number that's for the total provision not for the provisions unimpaired correct.
That's correct total okay. Thank you not giving a specific number I said in the neighborhood often they understood understood I just wanted to make sure that that's what you were speaking of in not just the provisions unimpaired. So that's great.
Then maybe for realize that the card services line on in noninterest income was looked a bit like this quarter.
I don't know if there's an element of seasonality if there's something else going on in there can you tell us what happened on that please.
Sure I, Rob from time to time, as we look at how Ah Ah cardholders engage with us.
We.
Have a revaluation of points liabilities reward points liabilities et cetera, So it's mostly a hard and this quarter I reflective of a of those are evaluations.
So absent that impact it would be something closer to what a normal run rate for that line would be is that fair.
Right Okay.
Okay.
The only thing I would add as you know that's driven obviously by our customers customers being more engaged with the program and doing more business with the program. So I think thats. It while it is an adjustment it's a positive.
Okay. Thank you.
Thank you and the next question comes from Scott's channels from Canaccord Genuity. Please go ahead.
Hi, good afternoon, I I always like looking at the U.M. on a on a fiscal year on annual basis, and when I look at the U.S. segment for you guys. The numbers are a bit perplexing versus peers on your U.S. anyone was down another 17% year over here and I think peers are kinda in the high teens.
You talked about the headwinds of.
Active to passive and I think that is kind of a less of that tailwind going forward, but.
Perhaps you can explain what what is going on there and if there's any kind of actions the kind of stuff those outflows.
Sure. So thank you it's Greg rocket. Thank you for the question.
So first I I would like to stir startup by saying that wealth and epic and asset management in the U.S. continues to be important part of our growth strategy long term and we are spending a lot of time discussing it and you correctly pointed out that there is an industry dynamic going on from active to passive and that's part of the story, but I think a couple of quarters ago I also.
Mentioned that we made the strategic decision to exit some money market funds that does drive the topline a U.M. number.
And we called that out in the past and there was a strategic decision. There was very very low margin business. They weren't strategic to us long term and we did exit that so I'd say, if you think about half of that story is roughly EUR eight UL and a the active to passive story and the other half is really a related to.
Or the exit of those money market funds.
Okay. Thank you very much.
Thank you once again, please press star one on your telephone keypad. If you have a question.
And the next question is from Nigel South from Veritas investment Research. Please go ahead.
Thank you good afternoon, so ive, a few Oh, I guess housekeeping items.
So one question I have for use as you noted that the.
An impact that we have from the derivatives valuation charges and wholesale banking and offset to that was a higher trading revenue I believe but when I look at.
Your disclosure it looks like a treatment we actually declined sequentially is that am I misinterpreting. The numbers. There were is or is there something I'm missing here no Nigel.
In aggregate the derivative valuation charges in Q4, where $96 million and they were taking true they were taken through the trading related line. So.
If you want to get the impact that you would have to grow step back up onto their trading related or the fixed income.
Fixed income line.
Got it that's really helpful. Then the second pointed out is more so on a dividend payout ratio. So no looking at your supplement.
The adjusted payout ratio is a 46.5% I understand that includes those restructuring charges, which weren't back backed out this quarter, but even if we do back that's still I believe higher than.
Run we've seen a in prior quarters, so does that have any.
Impact I know, it's early to talk about it but as I had any impact to your future.
Dividend policy decisions in a in 2020 or is this just the one off items that we should be looking up let me take that Nigel This is Barry.
We we look at our dividends generally speaking once a year and we'll do so again.
Our general policies to be within the range of 40 to 50, there have been times. When you said in our racial will be more influenced by trying to get to the mid range of that.
Of that a range, but you know so sometimes you know you're not the greatest forecasters are and you know it comes in lower than that I think what you saw this quarter because of these various charges it should not be viewed as a as a pattern from TD.
And the last question I have a speaking up those charges the distribution across the segment, the tire and U.S. retail in lower and lower allocation to a Canadian retail so.
Is this you know like you mentioned is merely repositioning than a normal I guess restructuring event or does this at least or do these charges tie in at all to the macro but because I think you'd expect more headwinds in domestic banking relative to a U.S. banking.
Yes, so its Greg I'll just start off on the U.S. portion that we've called out we had 52 million pretax restructuring charges in the U.S. and I'd say, it's probably half and half as I think about our franchise in store distribution and how we optimizing that in real estate costs and the other half of that charge would be around how we driving.
Our efficiencies, how we investing for the future and if you've seen the trend over the last several quarters and over the last year, you've seen us getting more and more expenses out being more efficient as an operation really allow us.
To invest in the things that are core including investments in new platforms and digital in technology and I think we made some major strides in 2019 on that front. So I divided up to half on half as I just described for the U.S.
Okay. That's very helpful. Appreciate the color. Thank you.
Thank you and the next question is from the start up Movahedi from BMO capital markets. Please go ahead.
Thank you I just wanted to come back to you.
We talk a lot about normalization enough to credit is there any reason to believe.
Loss content by product category, whether its credit cards or.
Other lines that you know consumer credit lines to loss content as we go into the next cycle will be anymore.
Punitive or higher than you may have been in prior cycles.
I don't have any reason to believe that I mean, but consumer leverage is high in Canada. So you could see a little more security.
You know on on the on the Canadian side, that's that's the only commentary, but that's not something that is necessarily you explicitly kind of factored into your into your build up to that plus or minus 50 basis, not necessarily but I've certainly.
Taken into account that insolvencies in 19, a higher than 16, 17 and 18 they are much lower than.
Or nine but I'm certainly assuming we continue to see that and in my mind. The driver of that is the consumer leverage.
In Canada.
And not to belabor the point, but from what very limited stuff you've already seen is there any reason to believe it's going to have a more severe lost content.
I don't believe so thank you.
Thank you there no further questions registered at this time I would now like to pretend that meeting back to that's most Ronnie.
Thank you operator and Ah. Thank you for all of you for joining us a this afternoon. A you know just to conclude in a very challenging environment. It was great to see that we continued to make progress on our enterprise priorities and I do want to take.
This opportunity to think about 85000 colleagues around the world for once again delivering.
For the bank and for our shareholders and to our folks who participated in the phone happy holidays and gives we do not meet before and so you in 90 days. Thank you.
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