TD Bank 2003 Annual Report Download - page 26

TD BANK FINANCIAL GROUP ANNUAL REPORT 2003 • Management’s Discussion and Analysis24
Wholesale Banking
A leading Canadian wholesale bank serving
corporate, government and institutional
clients around the world.
Overall business strategy
•Invest in businesses that support the needs of core
customers and provide opportunities for increasing
economic profit.
•Deliver full suite of capital market services for our estab-
lished customer base in Canada.
•Operate as a niche investment bank outside of Canada
by leveraging product capabilities or sector expertise.
•Selectively use credit to support high return relationships.
•Reduce non-core corporate lending risk.
Challenges in 2003
•Weak business environment with lower corporate financing
and structuring activity.
•Poor performance of the equity options business amid
difficult market conditions led to a restructuring.
•Responding proactively to stronger governance requirements
from investors and regulators.
2003 Highlights
•Improved Canadian investment banking rankings and
market share.
•Strengthened global product distribution capabilities.
•Used credit more effectively by focusing on client
profitability while strengthening the franchise.
•Significantly reduced the non-core loan portfolio.
•Reduced risk in the core loan portfolio by purchasing
protection.
•Reduced market risk levels.
•Rationalized under-performing and non-strategic businesses.
Business outlook and focus for 2004
Credit and equity markets improved substantially in 2003
and we are optimistic that corporate activity levels will
continue to recover in 2004. Our focus in 2004 is to:
•Continue to increase market share in our Canadian
franchise.
•Continue to implement our niche product and sector based
strategy globally.
•Continue to enhance our risk and control infrastructure.
•Continue to aggressively reduce the non-core loan
portfolio.
•Achieve return on average invested capital target of 18%
to 20% in the core business.
Review of financial performance 2003
Wholesale Banking reported cash basis net income of $363
million in 2003 compared with a net loss of $657 million in
2002. Return on average invested capital was 8.2% compared
with (16.1)% last year. Economic loss was $193 million in
2003 compared with $1,192 million in 2002. The improved
performance in 2003 is primarily a result of the significant
reduction in credit losses as compared with 2002, but includes
a $289 million after-tax charge for the restructuring and
goodwill impairment of the equity options business and the
effects of running off the non-core portfolio.
Wholesale Banking revenues are derived primarily from
corporate banking, investment banking and capital markets
and investing activities. Revenues declined 18% from 2002
to $2,177 million. The non-core portfolio incurred losses on
asset sales and derivative positions of $113 million. Capital
markets revenues, which include advisory, underwriting, trad-
ing, facilitation and execution services businesses decreased
by $198 million compared with 2002. This was largely a
result of reduced trading revenue from our structured prod-
ucts businesses.
Provisions for credit losses reversed from a $2,490 million
charge in 2002 to an $80 million release of sectoral allowances
in 2003. The 2002 allowance included $1,450 million of
sectoral provisions relating to loans in the non-core portfolio.
The sectoral allowance balance was $541 million at the end
of 2003, compared with $1,285 million at the end of 2002.
No credit losses were incurred in the core lending portfolio
in 2003.
Non-interest expenses increased 43% to $1,761 million
in 2003. The equity options business restructuring charge and
goodwill write-off in 2003 had a combined impact of $422
million. The remaining increase includes costs of streamlining
the core operations in Wholesale Banking, charges for sys-
tems write-offs, real estate downsizing and a legal provision
in the non-core portfolio and higher variable compensation
expenses compared with 2002.