TD Bank 2012 Annual Report Download - page 171

TD BANK GROUP ANNUAL REPORT 2012 FINANCIAL RESULTS 169
RISK MANAGEMENT
NOTE 34
INVESTMENT IN TD AMERITRADE HOLDING CORPORATION
NOTE 35
The risk management policies and procedures of the Bank are provided
in the MD&A. The shaded sections of the “Managing Risk” section of
the MD&A relating to credit, market and liquidity risks are an integral
part of the 2012 Consolidated Financial Statements.
During the year ended October 31, 2012, the Bank complied with the
OSFI guideline related to capital ratios and the assets-to-capital multiple
(ACM). This guideline is based on the “International Convergence of
Capital Measurement and Capital Standards – A Revised Framework”
(Basel II) issued by the Basel Committee on Banking Supervision.
Current period calculations are based on IFRS while comparative calcu-
lations are based on Canadian GAAP. The Bank’s regulatory capital
position as at October 31 was as follows:
Regulatory Capital Position
(millions of Canadian dollars, except as noted) October 31 October 31
2012 20111
Tier 1 capital $ 30,989 $ 28,503
Tier 1 capital ratio2 12.6% 13.0%
Total capital3 $ 38,595 $ 34,978
Total capital ratio4 15.7% 16.0%
Assets-to-capital multiple5 18.0 17.2
1
Calculated based on Canadian GAAP.
2
Tier 1 capital ratio is calculated as Tier 1 capital divided by risk-weighted
assets (RWA).
3
Total capital includes Tier 1 and Tier 2 capital.
4
Total capital ratio is calculated as Total capital divided by RWA.
5
The ACM is calculated as total assets plus off-balance sheet credit instruments,
such as certain letters of credit and guarantees, less investments in associated
corporations, goodwill and net intangibles, divided by Total capital.
OSFI’s target Tier 1 and Total capital ratios for Canadian banks are
7% and 10%, respectively.
OSFI’s relief provision permits phase-in of the impact of IFRS in
the
calculation of regulatory capital on a straight-line basis over five
quarters
from November 1, 2011 to January 31, 2013. OSFI has also
provided IFRS transitional provisions for the ACM, which allows for the
exclusion of assets securitized and sold through CMHC-sponsored
programs prior to March 31, 2010 from the calculation of ACM. The
IFRS transition adjustment for regulatory capital is the difference
between
adjusted net Tier 1 capital under Canadian GAAP and IFRS at
October 31, 2011. In the absence of this election, the Company’s Tier 1
and Total capital would be $30.6 billion and $38.2 billion respectively,
at October 31, 2012.
The Bank has significant influence over TD Ameritrade and accounts
for its investment in TD Ameritrade using the equity method. As at
October 31, 2012, the Bank’s reported investment in TD Ameritrade
was 45.37% of the outstanding shares of TD Ameritrade with a fair
value of $3,878 million (October 31, 2011 – $4,138 million) based on
the closing price of US$15.69 (October 31, 2011 – US$16.78) on the
New York Stock Exchange.
During the year ended October 31, 2012, TD Ameritrade repur-
chased 7.4 million shares (for the year ended October 31, 2011 –
27.7 million shares) which increased the Bank’s ownership position in
TD Ameritrade to 45.37% as at October 31, 2012 (October 31, 2011 –
44.96%). On August 6, 2010 and October 31, 2011, the Stockholders
Agreement was amended such that: (i) the Bank has until January 24,
2014 to reduce its ownership in TD Ameritrade to 45%; (ii) the Bank
is required to commence reduction of its ownership in TD Ameritrade
and continue its reduction as long as it can be executed at a price
per share equal to or greater than the Bank’s then-applicable average
carrying value per share of TD Ameritrade; and (iii) in connection with
stock repurchases by TD Ameritrade, the Bank’s ownership interest
in TD Ameritrade will not exceed 48%.
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank designated five of 12
members of TD Ameritrade’s Board of Directors including the Bank’s
CEO and two independent directors of TD.
TD Ameritrade has no significant contingent liabilities to which
the Bank is exposed. During the year ended October 31, 2012,
TD Ameritrade did not experience any significant restrictions to
transfer funds in the form of cash dividends, or repayment of loans
or advances.