TD Bank 2012 Annual Report Download - page 37

TD BANK GROUP ANNUAL REPORT 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS 35
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking net income for the year was $880 million, an
increase of $65 million, or 8%, compared with last year. The increase
in earnings was due to stronger results in our core businesses, partially
offset by reduced securities gains in the investment portfolio. The
return on common equity for the year was 21.2%.
Wholesale Banking revenue is derived primarily from capital markets
services and corporate lending. Revenue for the year was $2,654 million,
an increase of $158 million, or 6%, compared with last year. Capital
markets revenue increased primarily due to improved fixed income and
credit trading, strong debt underwriting, and robust mergers and
acquisitions (M&A) revenue. Fixed income and credit trading revenue
increased due to increased liquidity, tightening credit spreads and periods
of elevated volatility in the market. Debt underwriting fees remained
strong throughout the year. M&A revenue was higher aided by low
interest rates, robust banking markets and ongoing opportunities for
consolidation. Partially offsetting these improvements were lower security
gains from the investment portfolio and weaker equity trading and
underwriting on low industry-wide volumes and volatility.
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 $47 million, an increase of $25 million, compared
with last year. The increase in PCL was primarily due to a loss on a
single name in the corporate lending portfolio. PCL in the prior year
primarily comprised the accrual cost of credit protection.
Non-interest expenses for the year were $1,570 million, an increase
of $102 million, or 7%, compared with last year primarily due to legal
provisions in the current year and higher variable compensation
commensurate with improved revenue.
Risk-weighted assets were $43 billion as at October 31, 2012, an
increase of $8 billion, or 23%, compared with October 31, 2011. The
increase was due to the implementation of the revised Basel II market
risk framework.
The average FTE staffing levels increased by 36, or 1%, compared
with last year.
KEY PRODUCT GROUPS
Investment Banking and Capital Markets
• Investment banking and capital markets revenue, which includes
advisory, underwriting, trading, facilitation, and execution services,
was $1,987 million, an increase of $263 million, or 15%, compared
with the last year. The increase was primarily due to improved fixed
income and credit trading and strong M&A revenue compared to
the prior year. Partially offsetting these increases were lower foreign
exchange revenue, decreased equity underwriting and decreased
commission revenue.
Corporate Banking
• Corporate banking revenue which includes corporate lending, trade
finance and cash management services was $448 million, a decrease
of $5 million compared with last year. Low margin fee revenue was
partially offset by improved trade finance volumes.
Equity Investments
• The equity investment portfolio, which we are in the process of
exiting, consists primarily of private equity investments. Equity
investments reported total gains of $219 million, compared with
gains of $319 million in the prior year.
BUSINESS OUTLOOK AND FOCUS FOR 2013
We expect that markets will remain tentative, and that volatility
and interest rates will continue to trend below long term aver-
ages. A combination of fiscal challenges in Europe and the U.S.,
growing regulatory expectations and increased competition will
affect trading conditions in the medium term. Corporate finance
activity levels are also expected to be negatively impacted as
long as the outlook remains uncertain. M&A fundamentals are
generally positive given low valuations, high cash levels and an
attractive rate environment, but companies may be unwilling to
commit to deals unless economies show more upward momen-
tum. However, as economic conditions stabilize, capital market
activity should increase, resulting in higher origination, M&A
and advisory revenue.
Our key priorities for 2013 are as follows:
• Continue to grow the franchise by broadening and deepening
client relationships and investing in flow-based businesses
including U.S. rates and global currency trading businesses.
• Optimize our relationships with our enterprise partners and
their customers.
• Leverage our core capabilities internationally in select
geographies, primarily in the U.S.
• Focus on client facilitation by supporting market making
activities.
• Continue to invest in an efficient, effective and robust
infrastructure.