TD Bank 2011 Annual Report Download - page 36

TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT’S DISCUSSION AND ANALYSIS34
OVERALL BUSINESS STRATEGY
Our goal is to build the franchise and enhance leadership positions
while maintaining a prudent risk profile by providing superior wholesale
banking products and services to high quality clients and counterparties
in liquid and transparent financial markets.
• We focus on meeting client needs by providing superior execution
of client-driven transactions.
• In Canada, the strategic objective is to strengthen our position as
a top investment dealer.
• In the U.S., our objective is to extend the goals of the Canadian
franchise and leverage the networks of our U.S. businesses. We
will also continue to grow government fixed income and currency
trading businesses.
•
Globally, we seek to extend the goals of our North American franchise,
including trading in liquid currencies, as well as underwriting,
distributing, and trading high quality fixed income products of
highly rated issuers.
• We support and enhance TD’s brand with our high quality client base
and by expanding the service offering to clients of our partners.
(millions of Canadian dollars, except as noted) 2011 2010 2009
Net interest income (TEB) $ 1,603 $ 1,815 $ 2,488
Non-interest income (loss) 899 1,059 733
Total revenue 2,502 2,874 3,221
Provision for credit losses 22 25 164
Non-interest expenses 1,468 1,395 1,417
Net income − reported 813 866 1,137
Adjustments for items of note:1
Agreement with Canada Revenue Agency – 121 –
Net income − adjusted $ 813 $ 987 $ 1,137
Selected volumes and ratios
Risk-weighted assets (billions of Canadian dollars) 35 32 34
Return on invested capital 24.4% 30.7% 30.0%
Efficiency ratio – reported 58.7 48.5 44.0
Average number of full-time equivalent staff 3,517 3,217 3,036
WHOLESALE BANKING
TABLE 25
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 document.
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking net income for the year was $813 million, a
decrease of $53 million, or 6%, on a reported basis, and $174 million,
or 18%, on an adjusted basis, compared with last year. Throughout
the year, markets came under heavy pressure from the European and
U.S. debt crises and negative growth outlooks around the world. The
convergence of these issues and the uncertainty they caused, resulted
in significantly lower client volumes particularly in fixed income trading
in Europe and the U.S. These declines were partially offset by stronger
equity underwriting fees and commissions, and increased security
gains. The return on invested capital for the year remained strong at
24.4%, but down from 30.7% last year.
Wholesale Banking revenue is derived primarily from capital
markets activity and corporate banking. Revenue for the year was
$2,502 million, a decrease of $372 million, or 13%, compared with
last year. Capital markets revenue decreased primarily due to lower
revenue in fixed income and credit trading. Trading revenue moder-
ated from the prior year’s level as concerns emanating from the U.S.
and European sovereign debt crisis caused volatility in credit spreads
and declining asset values. Client volumes fell due to a lack of clear
direction in markets, and this combined with increased competition
led to tighter bid-offer spreads, and reduced trading opportunities.
Corporate lending revenue also decreased from the prior year due to
lower volumes and margins. Partially offsetting these decreases were
security gains from the investment portfolio, improved equity under-
writing and commission revenue due to higher origination activity as
global equity markets remained strong.
PCL comprises specific provision for credit losses and accrual
costs for credit protection. The change in market value of the credit
protection, in excess of the accrual cost, is reported in the Corporate
segment. PCL for the year was $22 million, a decrease of $3 million,
or 12%, compared with last year. PCL in the current year primarily
reflected the accrual cost of credit protection.
Non-interest expenses for the year were $1,468 million, an increase
of $73 million, or 5%, compared with last year. The increase primarily
relates to higher employee related costs in businesses that position us
for future growth and additional investments in risk and control infra-
structure. These increases were partially offset by lower variable
compensation related to lower revenue.
KEY PRODUCT GROUPS
Investment Banking and Capital Markets
• Investment banking and capital markets revenue, which includes
advisory, underwriting, trading, facilitation, and execution services,
was $1,730 million, a decrease of $621 million, or 26%, compared
with last year. The decrease was primarily due to economic uncer-
tainty which drove lower fixed income and credit trading revenue
and lower advisory revenue. In the prior year, favourable market
conditions characterized by tightening credit spreads and elevated
client activity resulted in strong, broad-based performance and
allowed for the opportunistic exit of a number of transactions.
Partially offsetting these decreases was higher equity underwriting
and commission revenue.
Corporate Banking
• Corporate banking revenue which includes corporate lending, trade
finance and cash management services was $453 million, a decrease
of $1 million compared with last year.
Equity Investments
• The equity investment portfolio, which we are in the process of
exiting consists of private equity investments only. Equity investments
reported total gains of $319 million, compared with a gain of
$69 million in the prior year.