TD Bank 2009 Annual Report Download - page 39

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS 35
BUSINESS HIGHLIGHTS
•
Wealth Management (composed of Global Wealth and the
Bank’s investment in TD Ameritrade) net income of $597 million
was 22% below 2008 primarily due to challenging equity
markets and the low interest rate environment. The Bank’s
investment in TD Ameritrade contributed earnings of
$252 million
for the year, 13% lower than the previous year.
•
Revenue decreased compared with last year, primarily due to
lower fee revenue in mutual funds driven by lower average
assets under management, and net interest margin compres-
sion. These decreases were partially offset by higher trading
volumes in the online brokerage operation.
•
Global Wealth assets under administration of $191 billion as at
October 31, 2009, increased by $18 billion, or 10%, compared
with October 31, 2008 primarily due to the addition of new
client assets and market appreciation compared with the
downward trend of the market in the fourth quarter of 2008.
Assets under management of $171 billion as at October 31,
2009 increased by $1 billion compared with October 31, 2008
due to net new client assets and recent market improvement.
•
The online brokerage business experienced record trading
volumes, increasing 32% over 2008. In the U.K., our online
brokerage operation moved into the number one market
position, as ranked by trades per day, with the acquisition
of OMX Securities.
•
The advice-based businesses grew by 75 net new client-facing
advisors. In addition, the business benefitted from higher
new issue activity this year.
•
TD Mutual Funds successfully launched Comfort Funds in
December 2008 with sales exceeding $700 million. TD Mutual
Funds achieved record sales for long-term funds and
completed the year being ranked number one in long-term
funds in the industry.
CHALLENGES IN 2009
•
Fee revenue in the first half of the year was impacted by
declines in global equity markets, though a recovery was
evident in the second half of the year. As the market value
of assets under administration and management recover,
fee revenue should improve.
•Net interest income declined as margins on cash deposits
narrowed due to significant drops in interest rates. Net inter-
est income is likely to remain challenged until interest rates
improve which may not occur until late fiscal 2010.
INDUSTRY PROFILE
TD Wealth Management operates in three markets: Canada, the
U.S., and the U.K. and Europe. In Canada, the industry is extremely
competitive consisting of players such as major banks, large insurance
companies, and monoline wealth organizations. The Bank has a leading
market share in online brokerage and asset management, and a growing
share of the advice-based businesses. Given the level of competition,
success will lie in our ability to deliver an exceptional client experience
as well as leveraging scale to improve earnings.
In the U.S., the wealth management industry is large but fragmented,
consisting of banks, discount brokers, mutual fund companies, and
private banks. The Bank competes against national and regional banks,
as well as brokerages in the Northeast U.S. The priority of our focus is
to capitalize on the large and loyal client base of our U.S. retail bank,
thereby deepening relationships to include investments.
In the U.K. and Europe, the industry is led by strong regional players
with little pan-European presence or brand. The Bank competes by
providing a great online experience with access to a wide range of prod-
ucts through its global businesses, including TD Waterhouse – Canada.
OVERALL BUSINESS STRATEGY
In Canada, our strategy is three-fold:
•In advice-based channels, work with our retail bank partners to
fulfill the needs of the mass affluent and high-net-worth clients
through our 1,800 client-facing advisors.
•In the online channel, target long-term active investors whose priori-
ties are competitive prices, strong service levels, and leading-edge
analytical and trading tools.
•
In retail asset management, focus on servicing the TD Canada Trust
customer base through our proprietary product offering.
In the U.S., our focus is on building an advisory capability by leveraging
our U.S. retail bank TD Bank, America’s Most Convenient Bank, and its
large and loyal customer base.
In the U.K. and Europe, our strategic focus is directed at self-serve
investors looking for competitive prices and a high level of service. We
are also building a corporate services offering to provide back-office
services to external organizations.
REVIEW OF FINANCIAL PERFORMANCE
Wealth Management net income for the year was $597 million,
a decrease of $172 million, or 22%, compared with last year. The
decrease was primarily due to lower revenue in mutual funds driven
by lower average assets under management and lower average fees,
net interest margin compression, and lower income from the Bank’s
reported investment in TD Ameritrade. These declines were partially
offset by higher trading volumes in the online brokerage operation,
increased long-term mutual fund sales, and increased revenue from
new issues. The Bank’s reported investment in TD Ameritrade generated
net income for the year of $252 million, a decrease of $37 million, or
13%, compared with the same period last year. The return on invested
capital for the year was 13%, compared with 19% last year.
Global Wealth revenue for the year was $2,205 million, a decrease
of $123 million, or 5%, compared with last year. Asset management
revenue decreased due to lower average assets under management
and lower average fees. Online brokerage revenue declined slightly
due to decreases from lower interest spread revenue which was partially
offset by record trading volumes and higher ownership in Internaxx,
U.K. Advice-based revenue increased primarily due to the full year
inclusion of the U.S. wealth management businesses.
Non-interest expenses were $1,701 million in 2009, an increase of
$86 million, or 5%, compared with last year. The increase in expenses
was mainly due to the full year inclusion of the U.S. wealth manage-
ment businesses, higher ownership in Internaxx, U.K., higher volume-
related expenses, and our continued investment in growing the sales
force in advice-based businesses. These expenses were partially offset
by lower variable compensation impacted by business results and
prudent expense management.
Average FTE staffing levels increased by 445, or 7%, compared
with last year. The increase was mainly due to the inclusion of the U.S.
wealth management businesses, the addition of new client-facing
advisors and support staff, and increased processing staff to handle
a higher number of new accounts related to the Tax Free Savings
Account and higher trading volumes. The efficiency ratio for the year
worsened to 77.1% compared to 69.4% in the prior year, primarily
due to the decline in revenue and the inclusion of U.S. wealth
management businesses.