The now-combined U.S. brokerage giant was set to contribute $241 million (Cdn.) to TD’s earnings for the quarter ended January 31, 2021.
To put that amount in context, the bank earned $10.42 billion, or $1.60 a share, in the October 2020 quarter.
TORONTO-DOMINION BANK (Symbol TD on Toronto; www.td.com) is now Canada’s second-largest bank by market cap after Royal Bank. It’s also the sixth-largest bank in North America.
In 2019, Ameritrade-rival Schwab eliminated commissions on most trades. That prompted Ameritrade to accept an all-stock takeover offer from that chief competitor.
The deal closed on October 6, 2020, creating the largest discount broker in the U.S.: it had 29.2 million clients and $6.42 trillion in client assets as of November 30, 2020.
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TD now owns 13.5% of the combined firm, but it controls just 9.9% of the voting power. Based on Schwab’s current stock price, that stake is worth $13.1 billion U.S. The transaction also generated a $2.3 billion (Cdn.) after-tax gain for TD.
Schwab investors hold about 69% of the combined firm, with other Ameritrade investors holding the remaining 18%.
Before the merger, Ameritrade deposited excess cash in its clients’ accounts with TD. As part of the deal with Schwab, TD will continue to manage Ameritrade’s deposits until July 1, 2031. It will, however, charge a lower fee.
Value Stocks: Merged brokerage will contribute $241 million in first quarter
Meanwhile, TD expects the higher value of its investment in Schwab to offset that hit. As well, investors should benefit from cost savings, due to the integration of overlapping operations between the two companies.
The holding was set to contribute $241 million (Cdn.) to TD’s earnings for the quarter ended January 31, 2021. To put that amount in context, the bank earned $10.42 billion, or $1.60 a share, in the October 2020 quarter.
If you factor out a gain on a recent acquisition as well as costs to integrate another purchase, TD’s earnings in the fiscal year ended October 31, 2020, fell 20.7% to $9.70 billion. That’s down from $12.23 billion in 2019. Due to fewer shares outstanding, per-share earnings declined at slower rate of 19.9%, to $5.36 from $6.69.
The earnings decline for fiscal 2020 was mainly because TD set aside more funds to cover potential future loan losses due to COVID-19 uncertainty. Its loan-loss provisions shot up 139.1%, to $7.24 billion for the year from $3.03 billion in fiscal 2019.
Despite that jump, bad loans accounted for just 0.32% of TD’s overall loans as of October 31, 2020. That’s also slightly better than the 0.33% at the end of fiscal 2019.
When a bank or insurance company put’s aside money for loan losses because of Covid-19 what happens when Covid-19 is over and everything is safe. Is the bank allowed to retrieve some of the money that was put aside. This would make a large gain when the coast is clear.
A loss reserve is an estimate of an insurer’s liability from future claims it will have to pay out on. Estimating liabilities can be a complex undertaking. Insurers must take into account the duration of the insurance contract, the type of insurance offered, the odds of a claim being made, and the time of it being resolved quickly. Insurers have to adjust their loss reserve calculations as circumstances change.
Meanwhile, if the original estimates of loan losses prove to be too high, the insurers can reverse the provisions. That means recovering the funds they set aside to cover possible losses from loan defaults. This boosts earnings, just as the original estimates cut earnings
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When a bank or insurance company put’s aside money for loan losses because of Covid-19 what happens when Covid-19 is over and everything is safe. Is the bank allowed to retrieve some of the money that was put aside. This would make a large gain when the coast is clear.
A loss reserve is an estimate of an insurer’s liability from future claims it will have to pay out on. Estimating liabilities can be a complex undertaking. Insurers must take into account the duration of the insurance contract, the type of insurance offered, the odds of a claim being made, and the time of it being resolved quickly. Insurers have to adjust their loss reserve calculations as circumstances change.
Meanwhile, if the original estimates of loan losses prove to be too high, the insurers can reverse the provisions. That means recovering the funds they set aside to cover possible losses from loan defaults. This boosts earnings, just as the original estimates cut earnings
Great. Thanks for sharing, Ronald.