TD Bank 2012 Annual Report Download - page 36

TD BANK GROUP ANNUAL REPORT 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS34
BUSINESS HIGHLIGHTS
• Achieved net income for the year of $880 million, an increase
of $65 million, or 8%, compared with last year.
• Return on common equity of 21.2%.
• Strong core revenue growth.
• Grew franchise fixed income and foreign exchange businesses.
• Continued growth in Asia-Pacific region to support TD
Securities market share and meet client demands.
• Strong trading-related revenue primarily in fixed income
trading despite challenging markets.
• Maintained top-three dealer status in Canada (for the nine-
month period ended September 30, 2012):
– #1 in equity block trading
– #1 in syndications (on rolling 12 month basis)
– #2 in equity underwriting (full credit to book runner)
– #2 in fixed-income underwriting
– #3 in M&A announced (on rolling 12 month basis)
CHALLENGES IN 2012
• Low interest rates and low volatility environment.
• Equity issuance activity declined among key corporate clients
and equity trading volumes declined across all key markets.
• Regulatory changes resulted in a substantial increase
in capital and expense base.
INDUSTRY PROFILE
The wholesale banking sector in Canada is a mature market with
competition primarily coming from the Canadian banks, large global
investment firms, and independent niche dealers. Favourable market
conditions during the first half of 2012 contributed to improved trad-
ing and investment banking volumes. Market conditions were mixed
during the second half of the year, but improved following stimulus
injections from central banks resulting in improved liquidity, tightening
credit spreads and higher asset prices.
Equity trading was lower throughout 2012 due to reduced trading
volumes on major exchanges and persistent low volatility. Higher
government and corporate client activity and the low interest rate
environment led to strong fixed income issuance activity throughout
the year. We expect competition to remain intense for transactions
with high quality counterparties as securities firms focus on prudent
risk management. Wholesale banks have shifted their focus to client-
driven trading revenue and fee income to reduce risk and preserve
capital which will continue to result in tighter margins. Looking longer
term, wholesale banks that have a diversified client-focused business
model, offer a wide range of products and services, and exhibit effec-
tive cost management will be well positioned as investor confidence
returns and markets improve.
OVERALL BUSINESS STRATEGY
• Our goal is to build a client-centric franchise model and maintain
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 advice
and 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 our network of U.S. businesses. We will
also continue to grow government fixed income, currency and
commodities trading businesses.
• Globally, we seek to extend the goals of our North American
franchise, including trading in liquid currencies, as well as under-
writing, distributing, and trading high quality fixed income
products of highly rated issuers.
• We support and enhance TD’s brand working in partnership with
other TD segments to offer premium products and services for our
collective client base.
(millions of Canadian dollars, except as noted) 2012 2011
Net interest income (TEB) $ 1,805 $ 1,659
Non-interest income (loss) 849 837
Total revenue 2,654 2,496
Provision for credit losses 47 22
Non-interest expenses 1,570 1,468
Net income $ 880 $ 815
Selected volumes and ratios
Trading-related revenue 1,334 1,069
Risk-weighted assets (billions of Canadian dollars)1 43 35
Return on common equity2 21.2% 24.3%
Efficiency ratio 59.2% 58.8%
Average number of full-time equivalent staff 3,553 3,517
1 Prior to Q1 2012, the amounts were calculated based on Canadian GAAP.
2 Effective the first quarter of 2012, the Bank revised its methodology for allocating
capital to its business segments to align with the future common equity capital
requirements under Basel III at a 7% Common Equity Tier 1 rate. The return
measures for business segments will now be return on common equity rather than
return on invested capital. These changes have been applied prospectively. Return
on invested capital, which was used as the return measure in prior periods, has not
been restated to return on common equity.
WHOLESALE BANKING
TABLE 23