TD Bank 2001 Annual Report Download - page 23

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HOW WE PERFORMED IN 2001
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE
of real estate and the introduction of lower statutory tax rates in
Canada. If the downward trend on capital taxes continues,
financial services firms will be taxed on a basis that’s similar to
the rest of the world – and that would make Canada a more
attractive place to do business.
Our total tax rate will always differ from Canadian rates
because we pay taxes in many jurisdictions. Our accounting
effective tax rate was substantially affected by items related to
purchase-related intangibles. A full reconciliation is set out on
page 59.
BALANCE SHEET
See Consolidated balance sheet page 42
Total assets were $288 billion at the end of the year, up
$23 billion or 9% from a year ago. Higher securities volumes
from securities purchased under resale agreements and from
investment and trading contributed $18 billion or 7% of the
increase in total assets.
Personal loans, including securitizations, declined by $4 bil-
lion. This decrease reflects a $7 billion drop in TD Waterhouse
margin loans. The decrease was somewhat offset by the strong
performance in the personal loan portfolio at TD Canada Trust,
which increased by $3 billion in 2001. Residential mortgages,
including securitizations, increased by $4 billion or 6% from a
year ago.
Personal non-term deposits grew by $7 billion or 18% in
2001 to $46 billion, with TD Waterhouse accounting for $2.8
billion of this increase. Personal term deposits decreased by
$4 billion or 7%, while wholesale deposits and securities sold
short and under repurchase agreements increased by $16 billion
or 18% to fund the increased trading securities volumes.
OUR OUTLOOK FOR THE ECONOMY
Some key terms
•Fiscal policy – Managing economic activity through
changes in government tax and spending.
•GDP – Gross Domestic Product, or the total value of
all goods and services produced in a country during
a given year.
•Monetary policy – Managing economic activity by
controlling the supply of money and credit. One way is
by central banks influencing short-term interest rates.
The performance of the Canadian and U.S. economies in 2002
will be largely shaped by monetary and fiscal policies aimed
at stimulating consumer and business spending –policies that
were implemented before and after the terrorist attacks on
September 11, 2001.
The economy was slowing in 2001
It became apparent early in 2001 that the Canadian and U.S.
economies were rapidly slowing. Manufacturing and business
investment were the most affected. Consumers for the most part
maintained their spending and single-handedly kept both
economies growing.
The U.S. Federal Reserve and the Bank of Canada moved
quickly to counteract the slowdown with a series of interest rate
cuts, beginning in January and continuing throughout the year.
As the weakness in the business sectors continued, many
companies began to shed labour to bring costs in line with
reduced production and sales. Concern began to mount that
consumers would not continue to carry the two economies on
their own, despite personal tax cuts made in Canada early
in the year and in the United States in the summer.
And then September 11 happened
The initial effect of the attacks in New York and Washington on
September 11 was to stop much economic activity and to
sharply slow the rest. This reaction was large enough to push
the two economies from very little growth to contraction in the
July to September period.
Both countries responded by cutting interest rates and
increasing spending:
•The Federal Reserve and the Bank of Canada each cut
interest rates just before the financial markets reopened and
made additional cuts during the rest of the year.
•The Canadian government stepped up spending on security,
defence, the Canada–U.S. border, and a few other areas,
amounting to about .3 percent of Gross Domestic
Product (GDP).
•The U.S. government put together a much larger package
that included spending related to the destroyed areas in
New York and Washington, security and the military.
Most economic activities resumed in the weeks following the
attacks, but it was not enough to overcome the loss of business
and consumer confidence. As a result, both economies are
estimated to have contracted in the October to December period.
Although the statistical change from July to December was
quite small – from very slow growth to a relatively modest
contraction – it meant that both economies technically moved
into recession.
What it means for 2002
The basic fabric of the Canadian and U.S. economies was not
damaged by the September 11 attacks. But the attacks struck a
blow to consumer and business confidence at a time when the
two economies were still fragile.
The positive effects of expansionary monetary and fiscal
policies and renewed confidence should get these economies
back on track. Confidence, however, will be strongly influenced
by geo-political events. If confidence improves, modest growth
should resume in the January to March period. If, as expected,
momentum builds throughout the year, both economies should be
expanding at annualized rates of 3 percent or more by July 2002.
Inflation is not expected to rise above the explicit 1 to 3 per-
cent annual increase targeted by the Bank of Canada and the
2.5 percent implicitly targeted by the Federal Reserve. Both
central banks are expected to begin to move monetary policy to
a more neutral stance, beginning after June of 2002. This will
involve a series of interest rate increases throughout the
remainder of 2002 and into 2003.