TD Bank 2010 Annual Report Download - page 36

TD BANK GROUP ANNUAL REPORT 2010 MANAGEMENT’S DISCUSSION AND ANALYSIS34
KEY PRODUCT GROUPS
Investment Banking and Capital Markets
• Investment banking and capital markets revenue, which includes
advisory, underwriting, trading, facilitation, and execution services,
was $2,351 million, a decrease of $803 million, or 25%, compared
with last year. The decrease was primarily due to the normalization
of capital markets as compared to very strong fixed income, currency,
and credit trading revenue in the prior year. In addition, there was
a recovery from the cancellation of a loan commitment in the prior
year. Partially offsetting these decreases were higher equity deriva-
tives revenue, and M&A and advisory fees.
Corporate Banking
• Corporate banking revenue which includes corporate lending,
trade finance, and cash management services was $454 million,
an increase of $57 million, or 14%, compared with last year. This
increase was due to higher margins and loan fees, partially offset
by lower average lending volumes.
Equity Investments
• The equity investment portfolio, currently composed of private
equity investments, reported a gain of $69 million, compared with
a loss of $330 million in the prior year. The increase is attributable
to the exit of the public equity investment portfolio in the prior year,
resulting in realized losses on the sale of these investments.
BUSINESS OUTLOOK AND FOCUS FOR 2011
We anticipate a continuation of moderate market conditions,
characterized by low volatility and interest rates. This environ-
ment, coupled with increased competition will yield fewer
trading opportunities; however, stable economic conditions
should increase capital markets activity resulting in increases
in debt and equity origination and M&A and advisory fees.
Lending volumes are expected to remain suppressed and
narrower credit spreads will affect pricing and negatively impact
revenue. We expect higher PCL as compared to low levels in
2010 which included several recoveries. Our key priorities for
2011 are as follows:
• Continue to build the franchise by broadening and deepening
client relationships and investing in flow-based businesses
including U.S. rates and global currency trading businesses.
• Leverage our core capabilities internationally in select geogra-
phies, primarily in the U.S.
• Maintain an effective risk management and control culture
while improving operational efficiency through disciplined
expense management.
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking net income for the year was $866 million, a decrease
of $271 million, or 24%, on a reported basis, and $987 million, a
decrease of $150 million, or 13%, on an adjusted basis, compared
with last year. Net income was impacted by a less favourable market
environment. Markets normalized and concerns emanating from the
European sovereign debt crisis resulted in lower client volumes, tighter
bid-offer spreads, and reduced trading opportunities. The return on
invested capital for the year was 30.7%, compared with 30.0% last
year. This improvement was driven by lower capital stemming from
reduced credit exposures, and decreased market risk as a result of
lower VaR.
Wholesale Banking revenue was derived primarily from capital
markets and corporate lending activities. Revenue for the year was
$2,874 million, a decrease of $347 million, or 11%, compared with
record revenue last year. Capital markets revenue declined primarily
due to lower revenue in fixed income and currency trading, as well
as the recovery from the cancellation of a loan commitment in the
prior year. Trading revenue moderated from the prior year’s record
level as weakening market conditions and increased competition resulted
in lower client volumes, and tighter bid-offer spreads. Exceptionally
strong results were achieved in the prior year as the dramatic recovery
in global financial markets was characterized by narrower credit spreads,
improved asset values, market liquidity and an enhanced competitive
position which resulted in strong broad-based performance with
particularly strong results in fixed income, currency and credit trading.
Advisory revenue increased this year from improved market share,
while underwriting revenue decreased primarily due to lower equity
issuance levels as compared to the prior year. Corporate lending
revenue increased due to higher fees and improved margins as the
portfolio re-priced. Progress in exiting the investment portfolio resulted
in some gains in the current year as compared to significant losses
last year.
PCL comprises specific provision for credit losses and accrual costs for
credit protection. The change in market value of the credit protec tion,
in excess of the accrual cost, is reported in the Corporate segment. PCL
for the year was $25 million, a decrease of $139 million, or 85%,
compared with last year. The decrease was due to the low level of
new formations during the year, as well as recoveries in the corporate
lending portfolio. The accrual cost of credit protection was $33 million,
a decrease of $8 million, or 20%, compared with last year.
Non-interest expenses for the year were $1,395 million, a decrease
of $22 million, or 2%, compared with last year. The decrease relates to
lower variable compensation related to lower revenue, partially offset
by ongoing investments in risk and control infrastructure.
1
For explanations of items of note, see the “Non-GAAP Financial Measures −
Reconciliation of Adjusted to Reported Net Income” table in the “How We
Perform” section of this MD&A.
(millions of Canadian dollars, except as noted) 2010 2009 2008
Net interest income (TEB) $ 1,815 $ 2,488 $ 1,318
Non-interest income (loss) 1,059 733 (68)
Total revenue 2,874 3,221 1,250
Provision for credit losses 25 164 106
Non-interest expenses 1,395 1,417 1,199
Net income − reported 866 1,137 65
Adjustments for items of note, net of income taxes1
Agreement with Canada Revenue Agency 121 – –
Net income − adjusted 987 1,137 65
Selected volumes and ratios
Risk-weighted assets (billions of Canadian dollars) 32 34 56
Return on invested capital 30.7% 30.0% 1.8%
Efficiency ratio – reported 48.5 44.0 95.9
Average number of full-time equivalent staff 3,217 3,036 2,961
WHOLESALE BANKING
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