DBRS Confirms TD at AA and R-1 (high), Trends Stable

DBRS has today confirmed the ratings of The Toronto-Dominion Bank (TD or the Bank) and its related entities, including TD’s Deposits & Senior Debt at AA and Short-Term Instruments at R-1 (high). All trends are Stable. DBRS has also discontinued the rating for TD Capital Trust II due to repayment of the securities. Also, DBRS has discontinued its rating of the Bank’s Cumulative Preferred Shares because there are none outstanding. The ratings are supported by TD’s focus on lower-risk retail banking and solid North American scale and presence. The quality of TD’s loan portfolio remains strong.

TD generated strong earnings growth in the first six months (6M) of fiscal 2014. The Bank was able to grow its net interest margin modestly in 6M 2014 year over year, mainly due to its acquisitions of the CIBC Aeroplan and Target credit card portfolios, each of which yield wider margins. Meanwhile, TD’s U.S. Retail unit has exhibited earnings growth, supported by both loan and deposit volume growth, the Target credit cards and Epoch Holding Corporation acquisitions, in addition to an appreciation of the U.S. dollar relative to the Canadian dollar.

In late 2014, TD’s longstanding CEO, Ed Clark, will be stepping down. Bharat Masrani, the Bank’s Chief Operating Officer, will assume the role of CEO. DBRS does not anticipate the management change, which was well telegraphed, to result in any shift in strategy or culture.

Like its other Canadian peers, the Bank has exposure to the Canadian residential mortgage market and other real estate lending. A slowdown in these markets may slow earnings generation, while a downturn in the residential mortgage or commercial real estate markets could hurt asset quality indicators and ultimately have an impact on provisioning levels.

TD’s Deposits & Senior Debt rating of AA is composed of an intrinsic assessment of AA (low) and a support assessment of SA2 (reflecting the expectation of systemic and timely external support by the Government of Canada). The SA2 ranking results in a one-notch benefit to the Issuer Rating and the Deposits & Senior Debt and Subordinated Debt ratings.

Notes:
The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2014), Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (December, 2013) and Criteria: Support Assessment for Banks and Banking Organisations (January 2014), which can be found on the DBRS website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.