Q2 2025 Toronto-Dominion Bank Earnings Call
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All participants please standby your meeting is ready to begin.
Good morning, everyone and welcome to the TD Bank Group Q2, 2025 earnings Conference call.
Speaker Change: I would like to turn the meeting over to MS broke Alice.
Speaker Change: Investor Relations. Please go ahead Ms Hills.
Speaker Change: Thank you operator, good morning, and welcome to TD Bank group's second quarter 2025 results presentation. We will begin today's presentation with remarks from Raymond <unk>. The bank's CEO, followed by Leo Salaam, President and CEO TD Bank America's most convenient bank after which Calvin Tran the bank's CFO will.
Speaker Change: Our second quarter operating results.
Wally: But Wally Chief Risk Officer will then offer comments on credit quality after which we will invite questions from prequalified analysts and investors on the phone.
Speaker Change: Also present today to answer your questions are sonet at group head Canadian personal banking, Barbara Hooper Group head Canadian business banking, Tim Wigan group head of wholesale banking and President and CEO TD Securities and Paul Clark Senior Executive Vice President wealth management.
Speaker Change: Turn to slide two.
Speaker Change: Our comments during this call may contain forward looking statements, which involve assumptions and have inherent risks and uncertainties actual results could differ materially I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. The bank believes that adjusted results provide readers with a better understand.
Speaker Change: Think of how management views the bank's performance.
Speaker Change: Hey, Leo and Calvin will be referring to adjusted results in their remarks additional information about non-GAAP measures and material factors and assumptions is available on our Q2 2000 and twenty-five report to shareholders.
Speaker Change: With that let me turn the presentation over to Ray.
Ray: Thank you Brooks and good morning, everyone.
Speaker Change: We had a strong quarter and I'm looking forward to walking you through the details in a minute before we discuss that and share updates on our strategic review in AML remediation I'd first like to comment on the current environment.
Speaker Change: Despite our recent tariff escalation between the U S and China, that's temporary in nature.
Speaker Change: There continues to be a high degree of macroeconomic and policy uncertainty.
Speaker Change: This has made it difficult for businesses to make long term decisions and created economic distortions, such as inventory stockpiling and purchases being pulled forward to avoid tariffs.
Speaker Change: This fluid environment has also driven volatility in capital markets and created angst for some households.
Speaker Change: Canada how.
Speaker Change: Housing activity has slowed and the job market has continued to soften with notable losses in trade exposed sectors.
Speaker Change: With the election in Canada, now behind Us, there's a new opportunity for bilateral discussions with the U S.
Speaker Change: And I've been encouraged to see the new federal government working alongside the provinces on opportunities to create economic growth, including those that elimination of interprovincial trade barriers.
Speaker Change: There are no quick fixes fixes to the challenges our country is complete.
Speaker Change: Confronting.
Speaker Change: This is going to take time and considerable effort.
Speaker Change: As a major employer and participant in the economic growth in both Canada, and the United States TD has an important role to play.
Speaker Change: We stand ready to engage and work productively with governments in both countries.
Speaker Change: Despite an uncertain external environment, our focus remains constant we're staying close to our nearly 28 million clients, providing advice and supporting them through this period.
Speaker Change: Within TD, we will continue to prudently manage risk as we drive our business forward, ensuring we can be there for our clients as their needs evolve.
Speaker Change: With that let's turn to the next slide.
Speaker Change: I'll start with an update on our strategic review this.
Speaker Change: This quarter, we completed the sale of approximately $9 billion on correspondent loans.
Speaker Change: We also communicated plans to wind down our U S point of sale financing business, which services third party retailers.
Speaker Change: This business is comprised of a series of bespoke arrangements with each retailer, which impacts this profitability and scalability.
Speaker Change: Exiting this business is accretive to U S retail Roe and.
Speaker Change: And free up capacity to invest in our proprietary bank card business.
Speaker Change: In addition through the strategic review, we are identifying opportunities to innovate to drive efficiencies and operational excellence.
Speaker Change: We are structurally reducing costs across the bank are taking a disciplined look at our operations and processes to find opportunities to automate and to reengineer them.
Speaker Change: Calvin will provide more details on our restructuring program in his remarks.
Speaker Change: These efforts will create capacity to accelerate digital and AI investments to upgrade capabilities and scale relationship banking.
Speaker Change: We are identifying growth opportunities and making good progress across each of our four pillars of our strategic review.
Speaker Change: T D will host an investor day on September 29.
Speaker Change: Where we will look forward well, we where we look forward to presenting a clear direction for the banks future and our refreshed medium term financial targets. Please turn to slide four.
Speaker Change: In Q2, the bank delivered a strong quarter with earnings of $3 6 billion and EPS of $1 97.
Speaker Change: We saw robust trading and fee income in our markets driven businesses and volume growth year over year in Canadian personal and commercial banking.
Speaker Change: Impaired PCL decreased quarter over quarter, reflecting strong credit performance broadly across asset classes.
Speaker Change: And we added to our performing reserves for policy and trade uncertainty, taking a prudent approach with more than a half a billion in reserves added over the past two quarters.
Speaker Change: Jay will share more details shortly in his remarks.
Jay: As of quarter end the bank CET one ratio was 14, 9% we made good progress on our share buyback this quarter repurchasing 30 million shares for a total of $2 5 billion.
Speaker Change: We still intend to deploy $8 billion of the proceeds from the Schwab share sale for our current and CIB.
Speaker Change: We have the capacity to execute the N CIB as planned while maintaining very strong capital levels. In this uncertain environment. Please turn to slide five.
Speaker Change: This quarter, we saw strong execution across our businesses the Canadian personal and commercial banking segment delivered growth on both sides of the balance sheet.
Speaker Change: And Russell, we continued to enhance speed to decision interval and to provide tailored customer customer advice by referring more complex deals to our mobile mortgage specialists.
Speaker Change: As you know our single greatest opportunity is to deepen relationships with our more than 15 million customers in Canada.
Speaker Change: We are executing against that.
Speaker Change: With continued strong referrals.
Speaker Change: The business Bank and wealth. In addition, the personal bank achieved record credit card penetration rates with new checking account customers.
Speaker Change: And the business bank loans were up 6% year over year, reflecting growth across our commercial business.
Speaker Change: In U S retail, we demonstrated resilience and momentum with six consecutive quarters of consumer deposit growth and core core loans up 2% year over year.
Speaker Change: Our U S U S wealth business also has momentum.
Speaker Change: Total client assets were up 15% year over year with math as mass affluent client assets up 26% year over year.
Speaker Change: We continue to prioritize and execute on our AML remediation and have made significant progress on our U S balance sheet restructuring.
Lee: Lee will provide an update in his remarks.
Lee: Wealth management, and insurance had a strong quarter, reflecting our diversified business mix.
Speaker Change: TD asset management added $5 3 billion in net institutional assets and our advice business delivered strong net asset growth.
Speaker Change: We continue to innovate in TD direct investing.
Speaker Change: The only bank owned brokerage in Canada to offer partial shares trading.
Speaker Change: We are seeing great momentum with an 83% increase in partial shares adoption by our Gen Z and millennial clients within the last six months.
Speaker Change: TD insurance continued its digital transformation with over 46% of new sales. This quarter completed digitally from end to end as we build on our position as the leading digital direct insurer in Canada.
Speaker Change: In wholesale banking, we continued to demonstrate the power of our broader platform with record revenue of $2 $1 billion.
Speaker Change: This quarter the trading business benefited from market volatility.
Speaker Change: We are navigating challenges in the market, while executing against our strategy.
Speaker Change: Across the bank, we are delivering for our clients this quarter, both TD auto finance in Canada and U S. Retail in Florida were recognized by J D power with the highest ranking in customer satisfaction.
Speaker Change: Please turn to slide six.
Speaker Change: We recognize that leadership in digital and mobile is critical.
Speaker Change: We are investing in these areas and enabling capabilities such as trusted data and AI.
Speaker Change: This quarter, we announced plans to open a new office in New York City for layer six Td's AI research and development Center.
Speaker Change: TD has over 800, AI patent filings and according to evident AI our portfolio is in the top 10 amongst banks globally.
Speaker Change: Last quarter I mentioned that we have deployed a generative AI virtual assistant in our contact centers to drive efficiency, while enhancing the customer experience.
Speaker Change: We are now beginning to deploy this journey I virtual assistant across our branch network, driving further colleague and customer experience and efficiency benefits.
Speaker Change: This year, we launched the next AI enhancement in our fraud operation in insurance claims to enhance our detection of suspected fraudulent auto and residential claims.
Speaker Change: This helps improve our response time to customers sort of genuine claims and continues our development of AI and insurance, which has been heavily engaged and machine learning for over a decade.
Speaker Change: TD continues to innovate for our clients colleagues and communities. Please turn to slide seven.
Speaker Change: In March we published our 2020 for sustainability report, providing an update on our efforts to protect the bank, while adapting business practices to meet changing market conditions and the evolving needs of our stakeholders.
Speaker Change: Before I turn it over to Leo.
Speaker Change: I want to thank our colleagues across the bank for their tremendous dedication and efforts together. We are writing. The next chapter of this great institution story, we will continue to invest in our talent and our culture with that over to Julio Okay. Thank you Ray and good morning, everyone. Please turn to slide eight.
Julio: I am very pleased with the progress we've made on our U S. AML remediation, which as we've said before is our top priority, we're executing against our remediation plan with focus and purpose and operationally we continued to make enhancements to our transaction monitoring coverage and investigative practices. As we said we would do last quarter.
Speaker Change: We implemented the final round of planned scenarios and our transaction monitoring system.
Speaker Change: Work is progressing on the use of specialized AI to detect isolate and automate our risk mitigation activities and teams are continuing to work on the implementation of the machine learning tools with these capabilities is expected to come online next month.
Speaker Change: In addition, we rolled out a streamlined workflow of our investigative practices, including the introduction of updated procedures for analyzing customer activity. These changes complement the updated procedures, we introduced last quarter.
Speaker Change: It is important to note, we're also making progress with data staging in relation to the look backs.
Speaker Change: Finally, we are continuing to implement risk reduction measures across our program. For example, this quarter. We introduced further enhancements to our cash deposit requirements at TD stores collectively these measures will help us manage the bank's financial crimes risks and coupled with our improved monitoring enable us to detect escalate.
Speaker Change: And report potential activity or interest earlier and more effectively while we still have more work to do we remain on track with our planned remediation activities and are building the foundational AML program that we need for the years ahead, we will continue to provide updates every quarter.
Speaker Change: Please turn to slide nine.
Speaker Change: I'd also like to update provide an update on our balance sheet restructuring activities. You will recall. This effort has two critical objectives first to strictly comply with and maintain a buffer to the asset limitation.
Speaker Change: And second to ensure that we can continue to serve our clients and communities as their needs evolve.
Speaker Change: We made meaningful progress against our objectives. This quarter as of March 31, the first reporting date for the asset limitation or two quarter average assets were approximately 405 billion versus the occ's asset limitation of $434 billion.
Speaker Change: At the end of the fiscal quarter total assets were 399 billion, reflecting the closing of the correspondent mortgage sale.
Speaker Change: Since the end of the first of the fiscal quarter. We have also paid down an additional $7 billion of bank borrowings, we expect to further reduce our assets in the upcoming quarters using the proceeds from the loan sales investment maturities and normalized cash levels to pay down additional short term borrowings.
Speaker Change: And as Ray mentioned, we communicated plans to gradually wind down the approximately $3 billion and our point of sale financing business, which services third party retailers as part of our efforts to reduce non scalable and niche portfolios that do not fit our focus strategy.
Speaker Change: I remain confident that we will largely complete the loan sales we identified last October by the end of the fiscal year and with the execution of our loan.
Speaker Change: <unk> and pay down of short term borrowing we expect to comfortably meet the 10% asset reduction we guided to in October.
Speaker Change: Turning to the investment portfolio rotation, we continue to expect to complete the investment portfolio repositioning no later than the first half of calendar 2025 to date, we have sold approximately $23 billion notional for an upfront loss of just under $1 3 billion pretax the investment portfolio.
Speaker Change: Our repositioning is expected to generate an NII benefit in fiscal 2025 at the upper end of the 300 to 500 million pre tax estimated range we provided in October.
Speaker Change: Collectively we expect these actions will enable us to improve return on equity through fiscal 2025 and into fiscal 2026 with that I'll turn it over to Kelvin.
Kelvin: Thank you Leo please turn to slide 10.
Kelvin: TD delivered a strong quarter.
Speaker Change: Total bank PTP was up 5% year over year after removing the impact of the U S strategic card portfolio, FX and insurance service expenses.
Speaker Change: Revenue grew 9% year over year, driven by higher trading related in fee income in our markets driven businesses, including fees from TD cell of a swap shares and volumes in Canadian personal and commercial banking.
Speaker Change: Expenses increased 12% year over year.
Speaker Change: With approximately one quarter of the growth driven by variable compensation commensurate with higher revenues foreign exchange and the impact of the U S strategic card portfolio.
Speaker Change: Impaired PCL declined quarter over quarter, reflecting strong credit performance.
Speaker Change: Performing PCL increased quarter over quarter, reflecting policy and trade uncertainty please turn to slide 11.
Speaker Change: Okay.
Speaker Change: As Ray noted we are undertaking a restructuring program to reduce structural costs and create capacity to invest to build the bank for the future.
Speaker Change: We incurred restructuring charges of $163 million pre tax this quarter and expect to incur total restructuring charges of $600 million to $700 million pre tax over the next several quarters.
Speaker Change: The restructuring program is expected to generate savings of approximately $100 million pre tax in fiscal 2025.
Speaker Change: And annual run rate savings of $550 million to.
Speaker Change: $650 million pre tax.
Speaker Change: Cost savings will be driven by workforce and real estate optimization asset write offs and business wind downs and exits as part of the strategic review.
Speaker Change: We expect this will result in approximately 2% reduction to our workforce.
Speaker Change: Whenever possible, we will look to achieve this through attrition.
Speaker Change: And we will redeploy talent in areas, where we are accelerating our capabilities.
Speaker Change: Through this restructuring program and the strategic review more broadly we are innovating to drive efficiency and structurally reduce the bank's cost base.
Speaker Change: We expect fiscal 2025 expense growth, assuming fiscal 2024 levels of variable compensation, FX and U S strategic cards portfolio to be at the upper end of the previously communicated 5% to 7% range, reflecting investments in governance and control and <unk>.
Speaker Change: Supporting business growth net of expected productivity and restructuring savings.
Speaker Change: Please turn to slide 12.
Speaker Change: Canadian personal and commercial banking delivered continued volume growth on both sides of the balance sheet.
Speaker Change: Average loan volumes rose, 4% year over year, with 3% growth in personal volumes and 6% growth in business volume.
Speaker Change: This quarter tariff uncertainty weighed on the Canadian housing market and we saw slower purchase activity.
Speaker Change: In Canada, we had record Q2 originations, which may reflect customers pulling forward auto purchases and enter anticipation of tariffs.
Speaker Change: Average deposits rose, 5% year over year, reflecting 4% growth in personal deposits and 8% growth in business deposits.
Speaker Change: Net interest margin was 282% up one basis point quarter over quarter, primarily driven by higher loan margins.
Speaker Change: As we look forward to Q3 Q3, we again expect NIM to be relatively stable.
Speaker Change: Expenses increased reflecting higher technology spend and other operating expenses, please turn to slide 13.
Speaker Change: U S retail demonstrated resilience and business momentum, while executing against our balance sheet we struggle.
Speaker Change: <unk> loans grew 2% year over year.
Speaker Change: In key areas of focus bankcard home equity middle market, and small business balances grew 11%, 9%, 8% and 6% year over year, respectively.
Speaker Change: As you know we are focused on enhancing ROE in U S retail.
Speaker Change: We are assessing relationship profitability across our loan portfolio.
Speaker Change: Net interest margin was three 4% up 18 basis points quarter over quarter, reflecting the impact of the U S balance sheet restructuring activities normalization of elevated liquidity levels, which positively impacted NIM by 11 basis points and higher deposit margin.
Speaker Change: <unk>.
Speaker Change: As we look forward to Q3, we again expect NIM to deliver a substantial expansion, reflecting the benefit from ongoing balance sheet restructuring activities and further normalization of elevated liquidity levels.
Speaker Change: Expenses increased $189 million U S or 13% year over year, reflecting higher governance and control investments, including cost of $110 million of U S. But U S. BSA AML remediation this quarter and higher employee related expenses.
Speaker Change: We continue to expect U S BSA, AML remediation and related governance and control investments of approximately $500 million pre tax in fiscal 2025.
Speaker Change: We expect similar investment in fiscal 2026.
Speaker Change: Please turn to slide 14.
Speaker Change: Across its diversified businesses, the wealth management and insurance segment is firing on all cylinders.
Speaker Change: Wealth management revenue was up 13% year over year with growth across fee based revenue from higher market level transaction revenue elevated trading activity in volatile markets and net interest income from higher deposit volumes and margins.
Speaker Change: Insurance delivered gross written premium growth of 10% year over year.
Speaker Change: Expenses increased this quarter, reflecting higher variable compensation and technology spend supporting business growth initiatives and employee related expenses.
Speaker Change: Segment, ROE remains very strong and nearly 47% and wealth management.
Speaker Change: Pure leading ROE is driven by robust returns across all of our businesses.
Speaker Change: Please turn to slide 15.
Speaker Change: Wholesale banking had strong performance despite increased market volatility and the decline in capital markets activity.
Speaker Change: Expenses increased reflecting higher technology and front office expenses, along with investments in our growth platforms.
Speaker Change: We continue to execute on our strategy to be a leading integrated North American investment bank with global reach.
Speaker Change: Please turn to slide 16.
Speaker Change: Corporate net loss for the quarter was $161 million, a smaller loss than the same quarter last year, reflecting higher revenue from treasury and balance sheet activities, partially offset by higher net corporate expenses, which were primarily driven by higher governance and control costs.
Speaker Change: Please turn to slide 17.
Speaker Change: The common equity tier one ratio ended the quarter at 14, 9% up 177 basis points sequentially.
Speaker Change: Internal capital generation was offset by the increase in <unk>, excluding the impact of FX.
Speaker Change: The swap share sale increased CET, one that by 238 basis points.
Speaker Change: We repurchased 30 million common shares under our share buyback program this quarter, which we do CET, one and by 40 basis points.
Speaker Change: Our average LCR for the quarter was 141%.
Speaker Change: <unk> remains comfortable that it can operate at more typical LCR levels. However, while actions have been taken to manage liquidity buffers down the proceeds from the swap share. So we'll continue to keep LCR elevated in the near term.
RJ: With that RJ over to you. Thank you Kelvin and good morning, everyone. Please turn to slide 18.
RJ: Gross impaired loan formations were 21 basis points, a decrease of four basis points.
RJ: 400 million quarter over quarter.
RJ: The decrease was recorded broadly across the Canadian and U S consumer and business and government lending portfolios.
RJ: Please turn to slide 19.
Speaker Change: Gross impaired loans decreased $587 million quarter over quarter to 487 billion or 51 basis points. The decrease was reflected in the Canadian personal and commercial U S retail and wholesale.
Speaker Change: Segments.
Speaker Change: With the largest contribution from the business and government lending portfolios and a $197 million impact.
Speaker Change: From foreign exchange.
Speaker Change: Please turn to slide 20.
Speaker Change: Recall that our presentation reports PCL ratios, both gross and net of the partner's share of the U S strategic card PCL loss.
Speaker Change: We remind you that <unk> got <unk> recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income.
Speaker Change: The bank's provision for credit losses increased 129 million or eight basis points quarter over quarter to 58 basis points.
Speaker Change: The increase is largely reflected in the Canadian personal and commercial banking and wholesale banking segments.
Speaker Change: Please turn to slide 21.
Speaker Change: The bank's impaired PCL was 946 million, a decrease of $270 million quarter over quarter.
Speaker Change: Flicked it across the Canadian and U S consumer and commercial lending portfolios.
Speaker Change: By asset class the largest quarter over quarter decreases were in the U S cards portfolios related to seasonal trends, coupled with the impact of a prior quarter model update.
Speaker Change: And the U S commercial lending portfolio.
Speaker Change: Performing PCL was $395 million compared to a recovery of $4 million in the prior quarter.
Speaker Change: The current quarter performing provisions primarily related to policy and trade uncertainty and were recorded in the Canadian personal and commercial U S retail wholesale banking and corporate segments.
Speaker Change: Please turn to slide 22.
Speaker Change: The allowance for credit losses was nine 6 billion, a decrease of $9 million quarter over quarter due to a $231 million impact from foreign exchange.
Speaker Change: And lower impaired allowance.
Speaker Change: Largely offset by performing the reserves in the consumer and business and government lending portfolios related to policy and trade uncertainty and applied through overlays and an update to our macroeconomic forecast.
Speaker Change: Please turn to slide 23.
Speaker Change: In light of recent events, we have provided additional disclosure regarding industry's most exposed to elevated policy and trade routes.
Speaker Change: These industries represent 9% of the bank's gross loans and acceptances.
Speaker Change: The ultimate credit impact will depend on a range of factors, including the magnitude and duration of Dallas and government stimulus wildly.
Speaker Change: While the industries of focus our broad exposure to borrowers most sensitive to these risks is small representing less than 1% of the bank's gross loans.
Speaker Change: We will continue to work closely with our customers through these challenging conditions.
Speaker Change: Now in summary.
Speaker Change: The bank exhibited strong credit performance this quarter ever.
Speaker Change: Evidenced by lower gross impaired loan formations gross impaired loans and impaired PCL loss.
Speaker Change: As a result of the ongoing policy and trade risks, we have reviewed our credit portfolios and bolstered our reserves in excess of $500 million over the past two quarters that being said there are many potential scenarios that could play out that may impact the economics.
Speaker Change: Amit trajectory and credit performance.
Speaker Change: Some of which could do.
Speaker Change: Drive fiscal 2025, PCL results beyond the 45 to 55 basis points range I previously provided.
Speaker Change: However, <unk> is well positioned to manage through this period considering.
Speaker Change: Prudent provisioning broad diversification across products and geographies, our strong capital position.
Speaker Change: And our through the cycle underwriting standards that have served us well through challenging conditions in the past.
Speaker Change: With that operator, we are now ready to begin the Q&A session.
Speaker Change: We will now take questions from the telephone lines. If you have a question. Please press star one you may cancel your question at any time by pressing Star two please press star one at this time if you other question.
Speaker Change: A brief pause while the participants.
Speaker Change: Stifel Bank question. Thank you for your patience.
Speaker Change: Okay.
Speaker Change: We will take the first question from Matthew Lee Canaccord Genuity. Please go ahead.
Matthew Lee: Oh good morning, Thanks, taking my question.
Speaker Change: I wanted to ask Neil one here when I think about that.
Matthew Lee: Our repositioning of the U S portfolio, you've talked a bit about $500 million of NII benefit in 2025.
Matthew Lee: But the program could continue into the first half of 2026, so does that kind of imply that there is.
Matthew Lee: Further a couple hundred million dollars of NII benefit that could be felt from the repositioning in 'twenty six.
Matt: So Matt Thanks for the question.
Matthew Lee: The trade effectively.
Matthew Lee: Takes a loss upfront and then obviously, you'll see the NII recapture associated with a higher rate structures on the investment bond portfolio over the next three years so.
Matthew Lee: You should expect that next year, the number will be slightly higher than what we recorded this year to reflect the calendar as Asian impact.
Matthew Lee: And then and that will continue.
Matthew Lee: Through year, three and then and then thereafter, depending on market market conditions that those investment bonds would reprice at market rates at that point in time.
Matthew Lee: And then we should be thinking about NIM is expanding in 2026 and beyond 2025 based on the new business.
Speaker Change: So maybe if I could just take a moment on there because I know that our NIM is moving we saw an 18 basis point improvement in the quarter Theres a number of factors that are influencing and I right now first.
Matthew Lee: As Kelvin described we are running down some of the excess liquidity that we had built up late last year second as you as you called out the investment bond repositioning is starting to trickle.
Matthew Lee: Trickle through the P&L and then and then obviously the tractor on off rates right now represents a tailwind for the business. So we do expect that the NII trajectory over the next few quarters to be quite positive and we do expect that NIM expansion for for the for Q3 will be a substantial increase.
Matthew Lee: <unk>, what we saw in Q2 I should state because for the for the second quarter, we did have one.
Matthew Lee: Extraordinary item, which is we did change the amortization period for some of our deferred product acquisition costs that was about a $46 million charge. We took we would not expect that to reoccur in Q3.
Speaker Change: Okay. That's helpful I'll pass the line.
Matthew Lee: Thank you Matt.
John: The next question is from John <unk> from Jefferies. Please go ahead.
John: Good morning, I wanted to clarify something that I thought I heard in your prepared commentary.
Speaker Change: Text of the exited the corresponding loans to the point of sale in the U S. You mentioned that it was going the proceeds going to be diverted into proprietary beam current operation did I did I get that correct. I guess has that been previously disclosed or is this a new initiative.
Speaker Change: Youre talking about the the wind down of our what we call our Rcs business, which is our third party credit card business and so that's about a $3 billion U S. Dollar portfolio that we're going to be winding down.
John: And then that will provide us.
John: Our capital that we can then redeploy to our proprietary credit card business that we've been building out organically for the last number of years fantastic.
John: Fantastic. Thank you.
John: Thanks.
Speaker Change: Assumption on my part and then Calvin in relation to the restructuring charge again I apologize if I missed this but did you give us a breakdown in terms of which segments will be will be more or less impacted by this.
John: No.
Calvin: The highest calvin.
Calvin: The impact is pretty broad base across the bank.
Calvin: I can offer that in terms of nature.
Calvin: It's going to be on the workforce real estate optimization.
Calvin: Asset impairment really about tech decommissioning.
Calvin: And also a wind down of some businesses like <unk>.
Speaker Change: Ray and Neil talked about earlier.
Speaker Change: Okay. Thanks, I'll re queue.
Calvin: Thank you.
Gabrielle: Question is from Gabrielle design from National Bank Financial. Please go ahead hi.
Gabrielle: I just wanted to ask you about your you know your excess capital position.
Gabrielle: So if I look at where you are today.
Gabrielle: A factor in the amount of buybacks youre still committed to our current prices and then this restructuring charge.
Gabrielle: Leaves me it leaves me with a pro forma ratio of about just under 14% so still a good amount.
Gabrielle: But the.
Gabrielle: I think most investors and myself anyway look out of well that's the most of the funds that are still remaining from the Schwab sale that you said.
Gabrielle: You'd be using some of that for internal investment.
Gabrielle: There isn't anything remaining you could be increasing.
Gabrielle: Increasing the buyback or buying.
Gabrielle: Buyback more stock than what you've announced already at some point in time I'm just wondering what the current view is in.
Gabrielle: And what the potential is for another large buyback is.
Gabrielle: You know the macro climate certainly dicier, maybe there's other initiatives investment initiatives you have in mind. So maybe you can provide some clarity.
Speaker Change: Gabe I appreciate the question.
Gabrielle: Let me start by saying as I said in my in my prepared comments on the current and CIB are.
Speaker Change: <unk> is still to execute the $8 billion in CIB buyback.
Gabrielle: And as we get through our strategic review and as I stated at the Investor Day will sort of lay out for you.
Gabrielle: Where we think we're going to deploy some of that capital and some of that certainly from we're seeing significant organic growth opportunities.
Gabrielle: And we're still looking at.
Gabrielle: Right sizing some of the portfolios from a scale.
Gabrielle: Those businesses that may not be core to our business and so we're looking at some of those opportunities and.
Gabrielle: And at the end of all of that we will assess the current market. I mean, these are uncertain times, and there's certainly has value and being.
Gabrielle: Well capitalized as we think forward, but as we move through this uncertainty and as we get through our strategic review.
Gabrielle: If we still then feel that we have excess capital as I've said before then we then look at as another opportunity to do another buyback so there could be.
Gabrielle: More costs associated with like the boats, one shouldn't be automatically assemblies.
Gabrielle: There's a big buyback coming into more investment required right.
Gabrielle: Yes, I think thats part of our strategic review, where we are definitely.
Gabrielle: Looking at how we deploy some of that capital and then we will assess the opportunity for a buyback later later in the year and sort of closer to next year, Okay. And then on the thanks for that on the bond portfolio repositioning.
Gabrielle: I think I've heard you talk about in the past like it was going to be done by the end of this quarter.
Gabrielle: Or maybe I misunderstood, but were roughly halfway through should be done by the midpoint of the calendar year.
Gabrielle: Fine.
Gabrielle: I'm just looking at the guidance on the NII uplift, you're still talking about a $300 million to $500 million U S.
Gabrielle: Only uplift, but not an annualized figure that's an actual impact on this fiscal year correct.
Gabrielle: I guess that's.
Gabrielle: More successful reimbursement is that basically the story, yeah, Gabe Gabe good morning, its Lee.
Speaker Change: Yes, the short answer.
Gabrielle: We are.
Gabrielle: We are virtually complete the actual investment bond portfolio, we'd indicated we'd be done by the end of the calendar I think will will be done virtually over the next few days and weeks so okay.
Gabrielle: I'm pleased on where we are with regards to the.
Gabrielle: The market's been constructive and so we were able to complete it.
Gabrielle: A little bit ahead of schedule now with regards to the impact we have indicating Kelvin mentioned it in his prepared remarks.
Gabrielle: We had given back in back in October a range of $3 to $500 million in and we can confirm to you right now that it will be on the upper end of that of that range that that is an in year 2025.
Gabrielle: Okay.
Gabrielle: Okay, great. So it was.
Gabrielle: And then just sneak another one in there the corporate NII like Big Big jump up there you mentioned treasury activities.
Gabrielle: Is there any.
Gabrielle: Unusual drivers there or is that some sort of new run rate.
Kelvin: Hi, it's Kelvin.
Kelvin: That's right the trading activity that we're mentioning relates to the investment from the proceeds of the swaps sure Sal.
Kelvin: We sold those shares we had.
Kelvin: Cash coming in and those are invested generating higher NII in the corporate segment and then you would expect NII to come down over time, as we redeploy that cash to buy back shares got it.
Kelvin: Thank you.
Speaker Change: Thanks Gabe.
Speaker Change: Thank you. The next question is from Doug Young of digital Bank capital markets. Please go ahead.
Doug Young: Hi, Good morning, just wanted to clarify one thing.
Gabrielle: Just on the business acts at the point of sale.
Gabrielle: <unk> business exit and Youre talking about the target credit card books and the other.
Gabrielle: Retailer credit card books just.
Gabrielle: Do I have that right or.
Gabrielle: Have that wrong.
Speaker Change: No Doug let me just clarify that there are three three businesses and our overall cards stable. One is our proprietary bank card business, which we've indicated this core and we've done a number of things happy to elaborate a little bit more of their second our co branded card offering and we have two critical partners Nordstrom.
Gabrielle: <unk> target those remain strategic we're very pleased with the relationship we have with both.
Gabrielle: Firms and then there's this point of sale financing business or what we have historically referred to as our retail card services business and the challenge with that business. Despite the fact, we have very strong relationships with some of the top retailers across the country is that business does not scale quite as well and when we were looking at what was going to be required to transform that business.
Gabrielle: It was going to be consumptive of significant investment resources and at the time, we were really thinking through where do we want to invest capital for the greatest return as Ray indicated we felt that it was more important to be able to invest in our in our.
Gabrielle: Our core proprietary cards business so.
Gabrielle: Just to be clear proprietary cards, and our co branded cards remain very much core and strategic.
Gabrielle: Long term strategic priority for us.
Gabrielle: Okay. That's.
Gabrielle: That's clear and then what other can you talk about any other businesses that you are that you would be thinking from a wind down perspective, and I would assume it's not just the U S. This will be across all of your different areas, but anything else that.
Gabrielle: You would highlight in terms of business exits or wind downs.
Gabrielle: Doug I would say not not on this call, but we certainly are looking at all of our options and going through all of our products services and businesses and some of that we will share as we get to the Q3 call and uncertainty will have more to share as we get to Investor day.
Gabrielle: Fair enough I figured I'd try it and then just.
Gabrielle: Maybe lastly.
Gabrielle: Thank you.
Speaker Change: It seemed like there was a sequential decent drop in non interest income.
Speaker Change: Maybe I've got that wrong, but is there anything in particular that went through in the Canadian banking on the revenue side that was abnormal or what what would have caused the sequential decline in the non interest income line.
Speaker Change: Hey, Doug, it's Tony I'll take that sequentially. It would've been three less days sequentially and on a year over year basis also you might recall, we had leap year last year. So there was one fewer day effectively this Q2, that's about a 1% impact to revenue on it.
Speaker Change: Q2 year over year basis or $48 million.
Speaker Change: Overall, the business fundamentals for cotton PNC are solid.
Speaker Change: Beyond the NII piece on the other income there were a collection of smaller Q2 impact I can give you a couple of examples we would've seen moderated foreign currency stand both on the debit and credit side of our consumers.
Speaker Change: Got a little more caution, especially with cross border purchases, we saw some lower merchant acquiring revenue.
Gabrielle: Business banking small timing items I know no one big things on the other income side for Q2, but rather a collection of smaller things. So really I'd say a few factors the biggest as days and leap year.
Gabrielle: But I would say as we look ahead, we were encouraged by the late Q2 volume momentum, we read that as a positive sign for Q3.
Gabrielle: And we're expecting quite over quarter NIM stability as Calvin had noted so overall, we're feeling confident heading into Q3.
Gabrielle: I appreciate the color. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from Paul <unk> from CIBC. Please go ahead.
Gabrielle: Thank you good morning, I wanted to get a better understanding of what drove the sequential decline in Embraer pcl's in Canadian P&C banking like listening to raise opening remarks regarding the macro backdrop, all of which I think makes sense.
Gabrielle: Suggests sort of higher impaired PCL, but obviously, we saw it lower so I'm just wondering what drove that and if there's anything we can take away from that.
Gabrielle: Trend in terms of.
Gabrielle: Forward expectations.
Gabrielle: Well thanks Paul.
Gabrielle: Let me give you an overview.
Gabrielle: What's happening on impaired PCL.
Gabrielle: Go to Canadian P&C is as well so as I said in my prepared remarks impaired PCL theyre down substantially $270 million, we've seen it in Canadian P&C the numbers in U S retailer quite big corporate segment as well numbers went up slightly for wholesale.
Gabrielle: If I look at Canadian P&C.
Gabrielle: Numbers are down across asset classes. So the original numbers that now auto numbers are down Cogs numbers are down and commercial numbers now, they're not large dollars, but I'd call them quite symbolic because its really telling us that if you keep this tariff issue aside we were really seeing.
Gabrielle: PCL and good quality and I think the fact that rates have come down.
Gabrielle: Borrowers and then if I turn to U S retail again, the numbers down quite a bit.
Gabrielle: <unk> is a big contributor, but as I said in my prepared remarks. There are two factors one is seasonality and the second is we put a model update in the last quarter or so quarter over quarter.
Gabrielle: A decline.
Gabrielle: The other asset classes that have come down. So for example, the commercial numbers in the U S are down a fair bit auto is down, but part of waters seasonality, but resolute and other parts of other consumer also down. So this is not just a one off yes. There is seasonality in this model issue as I said.
Gabrielle: When you factor in a contributor but I think on a broader basis, we're seeing good credit quality and then just finally on wholesale wholesale numbers went up a little bit its $28 million.
Gabrielle: And that's because we took some incremental bcl for three existing borrowers in telco cable media power and utility increase office and we did have two impairments there as well in forestry. So that's the overall picture on impaired PCL and I do view it as a.
Gabrielle: Quite a positive development.
Gabrielle: Okay.
Speaker Change: Second question is with respect to the cost restructuring and what I'm really going to try and get out is sort of roughly what proportion could we expect to benefit bottom line. He.
Speaker Change: Operating efficiency and one of them one of the reasons I ask just looking through some of the numbers in the sub pack I've seen Canadian P&C FTE year over year is down roughly 6%. So we've had significant head count production.
Speaker Change: But expenses still up 5%. So obviously the composition of expenses is changing so again I think it just raises the importance of the question how much of the cost restructuring gets redeployed into.
Speaker Change: Other initiatives investments and how much of it just dropped through to improved efficiency.
Speaker Change: It's Kevin I'll take that.
Speaker Change: So we see.
Speaker Change: And you have opportunities to continue to invest in their business to drive future growth and one area as you would expect it on the digital AI technology front, and so that that spend does not always translate into specific ftes, but those are investments that are important investment for us.
Speaker Change: Okay. So if I understand the answer then most of it gets redeployed into investments into the business.
Speaker Change: That's correct okay. Okay. That's it for me. Thank you thanks, Paul Thank.
Speaker Change: Thank you. The next question is from Sohrab <unk> from BMO capital markets. Please go ahead.
Speaker Change: Okay. Thank you.
Speaker Change: Maybe I can if I could just start off with Leo.
Speaker Change: Obviously lots of good work getting done lots of moving parts.
Speaker Change: In the first half of the year in U S dollars U S retail has done around one two.
Speaker Change: Billion.
Speaker Change: What do you think the second half of the year will be from an earnings contribution perspective.
Speaker Change: Sure.
Speaker Change: Good to talk to you.
Speaker Change: We're not going to provide a guidance at this point, but maybe if I can give you the moving parts.
Speaker Change: But generally speaking we're constructive we're very positive about what the second half will look like and what's driving that is one as I indicated before I do think we will have NII tailwind.
Speaker Change: Based on the factors that I described before that being less excess liquidity investment bond repositioning of the tractor on off rates all of those things will will give us a tailwind as we think about the back end of the year I do think that from a from a fee line. Another income perspective, I mean, we saw in the quarter strong growth.
Speaker Change: In our wealth business.
Speaker Change: Continued work with TD Cowen.
Speaker Change: Our commercial banking business on the on the lending fees line and sustained growth in our retail consumer retail deposit franchise will which will translate into services.
Speaker Change: So you put those things together and I think from a revenue standpoint, we would expect revenues to be sustained and strong from a cost standpoint.
Speaker Change: Quickly I would say, we would expect a moderation in the in the rate of growth in expenses in the second half.
Speaker Change: And that reflects a number of things one is the year on year financial shape, but also some of the work that we're doing from a productivity standpoint to absorb some of the governance and control type activity. So I think we remain while expenses related to AML will be slightly higher based on our spend pattern for the first half of the year I think generally speaking well.
Speaker Change: See a moderation in the rate of growth and you've heard Ajay talk about where we are from a overall health of the credit portfolio itself. So you put those things together and we are feeling optimistic about what the second half of the year is going to be in the one thing that we've been in raise been very clear about this I think ive messaged as well is we're really focused on improving the.
Speaker Change: Our return on equity profile quarter on quarter through this year and into next year as we think about the Investor day discussion I think will provide a little bit more guidance as to as to firming up with that objective looks like but.
Speaker Change: Long winded way of saying I think we feel very positive about the backend of the year.
Speaker Change: Okay. That's really helpful. Thank you and if I can just sneak one more in for Ajay I mean, I think I know you said you know tariffs aside everything's fine actually.
Speaker Change: Do you think about the complex environment to tariffs all the puts and takes.
Speaker Change: Where do you think you will actually see deterioration will it be in I'll call. It the business in corporate lending stuff, where do you think it will be in the consumer stuff.
Speaker Change: Yes, well, thanks, Sarah I think I think you could see it actually in booked because if the macro deteriorates you will see it in consumer and the way we built our reserves, we have both for consumer and business and government lending.
Speaker Change: I do think and we have built the reserves that way that there could be bigger impact on non retail and most of this $500 million that we're talking about is actually being built in business and.
Speaker Change: In government and what we did is we actually went and look first at the industries that were exposed to tariffs. Okay. That's the 9% number that we have disclosed after that we went and looked on a more narrow basis, saying what out of these borrowers are most sensitive.
Speaker Change: Darius.
Speaker Change: But we look broadly at the financial impact again across the 9% not just a smaller smaller population. We look at the ratings migration that could occur based on that ratings migration. We built our reserves. So again this 500 million a big part of it is business and government.
Speaker Change: There is some for consumer because if the macro deteriorates I think you should expect there'll be impact on the consumer as well.
Speaker Change: Okay, and so was this equity markets right town equity investment portfolio. Mark Downs, you talk about was that would you dump that is tariff related as well.
Speaker Change: This was in wholesale banking, yes, it's Tim Wiggins, So I would attribute that to our strategic portfolio Mark to market on our strategic portfolio, which would correlate more to index declines within quarter.
Speaker Change: And so if you see a normalization quarter over quarter.
Speaker Change: And the S&P that can reverse so it was a factor in the quarter, but it was a mark to market events I see okay. Thank you for that clarity.
Speaker Change: Yes.
Speaker Change: Thank you. The next question is from Mike and his son, Nova Scotia.
Speaker Change: Scotiabank. Please go ahead.
Mike: Hi, Good morning question for Leo just wanted to talk a little bit about the AML spend and it looks like I think this is a new guidance correct me, if I'm wrong, but the 500 million persisting in 2026, and I guess I was under the impression I think a lot of investors were that that number could potentially fall off at some point so.
Mike: Not trying to ask for 2027 guidance, but is that still the dynamic where you do expect at some point. These expenses will fall off to some extent or is it more of a perpetual sort of run rate for AML.
Leo: Mike Let me, let me answer that by first saying that we are we are comfortable with the guidance that we provided for 2025. So in other words, we do believe that we will operate within the $500 million guidance that we provided we spent.
Leo: Between the first and second quarter about $196 million.
Speaker Change: We will see a slight uptick as we as we go into the meat of our remediation delivery programs, but I feel comfortable with that guidance. What we did is we wanted to give the.
Speaker Change: The Street, a sense of what 2026 was going to look like I'd say right now we believe that the spend will be similar the composition of the spend might change a little bit it might be a little less remediation more validation work more look backs.
Speaker Change: Monitor costs et cetera, so the composition might change, but we think the overall spend level is going to be similar and then I wouldn't want to speculate on 27 28, but I feel like the program is moving we're actually making good progress on the remediation plan, we're hitting the milestones we're tracking well so I feel positive about.
Speaker Change: Some of the expense guidance that we've already provided.
Speaker Change: Okay.
Speaker Change: No color you can't really provide any color on potentially drawing that to some extent lower at some point in the future, but there is no question as we start thinking about those outer years I would expect that the raw remediation program management.
Speaker Change: Expenses that we're incurring today will fall off we could have a slight uptick in some of our run costs, but net net there will be a decline at some point in the future.
Speaker Change: Got it Okay. That's helpful. And then maybe a quick one for <unk> just on the mortgage business in Canada.
Speaker Change: It does look like TD saw a bit of a decline sequentially and I think there has been quite a bit of underperformance versus most of your peers. Just in terms of your reservoir balances and the Canadian P&C segment can you help me understand what's driving that I was sort of under the impression that with the the big push button.
Speaker Change: On the mortgage.
Speaker Change: Mortgage mobile spell specialist story.
Speaker Change: You, probably could see at least market level growth and maybe even some outperformance on some of those initiatives, but I am just a little bit confused as to why why you would be underperforming just given some of those new distribution.
Speaker Change: The distribution channels that you sort of introduced the last couple of years.
Speaker Change: Oh My God. This is Shawn thanks for the question. So maybe I'll just start just briefly on the macro context.
Speaker Change: <unk> clearly seen buyers sitting waiting a little bit on the sidelines now we're seeing inventory buildup I think we're up to five months of inventory and I think you know each.
Speaker Change: Each of the last three months of Korea housing sales were in the range of 9% to 10% lower on a year over year basis.
Speaker Change: And so it's certainly a different spot than where we were in early Q1 and early Q1, we were gearing up for a strong spring just given the natural support and freight environment.
Speaker Change: Uncertainty is weighing on buyers' sentiment. So really you know a lot has changed in the last four months.
Speaker Change: If I look at our specific competitive position, where a multichannel thriller cycle lender I would say in this particular market our broker originations have moderated a little bit we have really strong relationships and we continue to compete for profitable business.
Speaker Change: But you you mentioned, the MMS and what I thought might be helpful to share is despite the macro headwinds I'm really pleased with the strength that we've seen in our proprietary channels.
Speaker Change: And so if I look at our branch and in US proprietary ecosystem originations and again. This is despite the macro environment originations in those two channels are actually up double digits year over year, and so while you see a flat average sequential growth on a spot basis, we're actually up a 1 billion and a half.
Speaker Change: Order over quarter. So the growth is there a debt profile is a little different this quarter, where we had higher paydowns in January and February, but then we exited the quarter with momentum.
Speaker Change: Overall I think the fundamentals are very good what we are highly focused on Mike is really building speed in our ecosystem.
Speaker Change: During we have specialization.
Speaker Change: Our branch mortgage referral system.
Speaker Change: Our system I had shared on the Q1 call we had tripled referrals in that ecosystem in Q1 and that has continued in Q2. So on a year to date basis. The branch out on us ever Harley ecosystem is performing incredibly well. So I would say good exit momentum into Q2, and I think we're poised as the market recovers to deliver on.
Speaker Change: They had an expertise.
Speaker Change: Okay, that's great and so I just just one quick follow up so would you be expecting to trend in terms of loan volumes with the industry I'm just not sure. If there's a dynamic of protecting margins or maybe focusing on more profitable accounts that would maybe lead to a little bit of underperformance going forward.
Speaker Change: You know I think Mike profitability should always be a factor and so we will compete to win profitable business and then leverage our strength in channels, where we can differentiate on speed and customer experience, but profitability is important.
Speaker Change: So Matt do you want to add.
Speaker Change: A little bit on just the Paydown dynamics that you see yeah, yeah for sure until then I can share that so Mike what we saw in Q.
Speaker Change: Q1 was some seasonality late in the quarter and are really that continued actually interestingly enough. This year. This quarter into February so both January and February were high pay down months for us and I think our book skews, a slightly more premium and so as you have.
Speaker Change: Customers that have more disposable income by way of yearend bonuses for example, and more liquidity in the markets. We actually saw January and February our prepayments were up double digits on a year over year basis. So that was some of the the dampness and late in Q1, and then also the <unk>.
Speaker Change: <unk> client as well as early in Q2 and February so those are perhaps a little bit more symptomatic of our premium book.
Speaker Change: Okay got it. Thank you. Thank you very much for the color that's helpful.
Speaker Change: Thank you. The next question is from Lamar Pascal <unk> Securities. Please go ahead.
Speaker Change: Yes, Thanks, a lot of global liquidity coverage ratio at 141%.
Speaker Change: Youre, saying that obviously it should be somewhat elevated in the near term, reflecting these proceeds from the <unk> shares.
Speaker Change: How should we like what's a more normal level given all the changes thats going on at TD and.
Speaker Change: Should we be thinking about something in the 130% flat range and kind of how fast you get there.
Speaker Change: Any thoughts would be helpful.
Speaker Change: Sure, It's Kelvin I'll take that yes. So we would look at LCR in the normal range of $1 25 to $1 35. So 130 is kind of smack in the middle.
Speaker Change: In terms of just adding providing a little bit more color last year, when we raise liquidity some of that liquidity where.
Speaker Change: Like a kind of a let's say a one year basis. So it's going to take some time for those to run off.
Speaker Change: But we're comfortable at.
Speaker Change: Normalizing, our recruiting levels getting back to the $1 25 to 135 overtime.
Speaker Change: And is that something that we can expect in the next year and I'm. Just wondering if you could just provide some timeframe or so.
Speaker Change: Yeah. The answer is yes, because the two biggest pieces as you know is the proceeds from the Schwab sow and then a lot of that is going to be redeployed in share buyback.
Speaker Change: That's going to be.
Speaker Change: And then some of those liquidity raise about a year or 18 months.
Speaker Change: And over that timeframe that that would also decrease so that would normally.
Speaker Change: Okay. Thanks, and then.
Speaker Change: Question on credit here.
Speaker Change: Appreciate the disclosure on these industry a focus from tariffs but.
Speaker Change: Im wondering if theres any color you can add as to what industries make up that kind of less than 1% cohort is it focused in any of these specific industries like automotive agriculture or anything that you've highlighted on your slide 23 or is it.
Speaker Change: Kind of a well diversified amongst these kind of industries of focus.
Speaker Change: I'd say, it's diversified across a number of industries that are on that page some of the ones that can call out for your benefit would be auto.
Speaker Change: Cultures Sunday manufacturing transportation and retail those that's where the most sensitive would be but the industry is on the page is not confined to one industry. So it's fairly diversified.
Speaker Change: Okay, and then how does it how does your watch list kind of evolved over the last quarter.
Speaker Change: Good question positively in the watch list has been coming down and it's actually down across all business segments.
Speaker Change: Okay. Thanks.
Speaker Change: Anything you could share in terms of magnitude of changes on that watch list.
Speaker Change: No I don't I don't have all those numbers in front of me, but I think if I look at my Embeds.
Speaker Change: I wouldn't say a huge movement, but they are positive movements.
Speaker Change: Okay. Thanks, that's it for me.
Speaker Change: Thank you. The next question is from ductile Mihelich.
Speaker Change: VC capital markets. Please go ahead.
Speaker Change: Hi, Thank you. Good morning, my questions are all for Andre as well.
Speaker Change: Maybe just the first question is with respect to the the.
Speaker Change: The reserve building I do see the $500 million.
Speaker Change: And the business build but one of the things that I do also see.
Speaker Change: Is when I look at the forward looking indicators and sort of what has changed.
Speaker Change: I see very significant changes in Canada, GDP U S GDP and the house price Index is also fairly aggressive and then you went from <unk>.
Speaker Change: An expectation last quarter of 8% to a negative.
Speaker Change: Expectation for house prices.
Speaker Change: For the rest of this year.
Speaker Change: But a very small change overall in the actual.
Speaker Change: Wednesday, <unk> performing at about 3% quarter over quarter and I believe it's linked to very small changes in your unemployment expectations, where we are seeing with a 40 basis point increase.
Speaker Change: And unemployment expectation and it's essentially sitting where unemployment is today.
Speaker Change: So what is informing them.
Speaker Change: First of all am I correct in thinking that if we had a bigger change in the unemployment expectation, we would have seen even more reserve build unlikely consumer retail and what is it that's informing this view that unemployment really won't change from like the current level in Canada.
Speaker Change: Yes, well, let me, let me walk you through what the drivers of our.
Speaker Change: Got it.
Speaker Change: First the <unk>.
Speaker Change: Macro changes and again the macro changes are determined by our chief economist.
Speaker Change: But I mean, but we have a strong governance process and we take it through.
Speaker Change: Our governance process, but what changed so yes, you called out GDP actually came down quite a bit for Canada quite a bit for the United States unemployment for Canada quarter over quarter for their near term went up one 4% for the U S went up 2%.
Speaker Change: We did put tariffs into these scenarios and I am happy to share the numbers with you for Canada, we put in tandem so 10% for six months and then those come down over a period of time and for the U S. We put in 23% for six months and those come down over a period of time.
Speaker Change: Sure.
Speaker Change: The second thing I'd like to point out on macro is that our downside case is a recessionary kits.
Speaker Change: That downside case also reflects the risk of higher tariffs. In addition to the macro what we've done is we've look more holistically at the book and said.
Speaker Change: At higher tariffs trade, what could be the impact on consumers and non consumers and thats. The way we built the overlay. So it's really a combination of these macro plus the judgmental overlays that got us to the 500 million number but at 101 beeps.
Speaker Change: Darko I do feel that we are well reserved and the one thing I want to caution you because the situation is fluid and things could change there's always the possibility. We may have to build reserves, but I feel good as to where we are our reserves reflect a forward looking view as at April 30, or so.
Speaker Change: What we're looking to do it was we may have to build more reserves, but again.
Speaker Change: For this year as you know.
Speaker Change: I would really ask you to anchor on the fact that we're not changing our guidance were still saying for this year of 45 to 55 basis points, but we're also calling out that the risk to that range is elevated because of the environment.
Speaker Change: Okay.
Speaker Change: Been here also additional color is that immigration policies also constraining population growth. So so it is harder to get a rising unemployment right out of bat factor. In addition, the assumption.
Speaker Change: Run various scenarios in your projections, but the scenario that we find there is that we expect high resolution to be somewhere in Q3, and if that it takes longer than that.
Speaker Change: That would that would worsen.
Speaker Change: The economic outlook and potentially drive higher PCL.
Speaker Change: Okay. Thank you for that and in your one of your answers previously R. J you mentioned that.
Speaker Change: The industries that are at risk.
Speaker Change: You sort of suggested.
Speaker Change: Suggested that of that 9% just 1%.
Speaker Change: As it is most sensitive I supposed to tariffs and you mentioned migration risk can you maybe better define that for me I just wanted to understand.
Speaker Change: The better definition and why the exposure is relatively small at less than 1%.
Speaker Change: Rather sensitive to tariffs. So maybe you can just define that migration issue a bit better for me well, let me, let me outline how we built.
Speaker Change: <unk> created the overlay we looked at the industries that were most exposed to capex. Okay. That's a broad set that's the 9% number our reserves were built on that 9% number. What we did is we went actually within those industries borrower by borrower.
Speaker Change: First what is the financial impact on the borrower. So for example, we look at revenue we look at cost of goods sold and we'd look at what impact that would have on the ratings of that individual borrower.
Speaker Change: Then aggregate that up that created the overlay. Okay. So that's that's the allowance. We then went to.
Speaker Change: To each borrower and we used a set of criteria and one of the main criteria, we used was more or less strength.
Speaker Change: Which of these borrowers would be most durable on most sensitive due to tariffs and when we aggregated that number up this is exposure that number was less than 1%.
Speaker Change: Gross loans.
Speaker Change: Okay. Thank you and so essentially if your reserves are based in the 9%.
Speaker Change: But when you whittled it down to less than one is it.
Speaker Change: Are you, suggesting that the overlay oxy brought the reserve down.
Speaker Change: No the reserves up based on 9%, but you could conclude a lot of those reserves are held against these names that are most sensitive.
Speaker Change: Okay, that's better okay. Thank you.
Speaker Change: Thank you there are no further question with just one at this time I would now like to turn the meeting over to Raymond Chen.
Speaker Change: Okay.
Speaker Change: Mr Cheng.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Take a pause for a SEC.
Speaker Change: Listen let me.
Speaker Change: Just thank everyone for joining the call and just again I'll end with thanking our more than 100000 colleagues across Canada U S and globally.
Speaker Change: For all your support and all the hard work and look forward to chatting with all of you next quarter.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you the conference.
Speaker Change: <unk> has now added to disconnect your lines at this time and we thank you for your participation.
Speaker Change: This conference is no longer being recorded.
Speaker Change: <unk>.