TD Bank 2012 Annual Report Download - page 63

TD BANK GROUP ANNUAL REPORT 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS 61
In addition to the risks described in the Managing Risk section, there
are numerous other risk factors, many of which are beyond the Bank’s
control and the effects of which can be difficult to predict, that could
cause our results to differ significantly from our plans, objectives and
estimates. All forward-looking statements, including those in this
MD&A, are, by their very nature, subject to inherent risks and uncer-
tainties, general and specific, which may cause the Bank’s actual results
to differ materially from the expectations expressed in the forward-
looking statements. Some of these factors are discussed below and
others are noted in the “Caution Regarding Forward-Looking
Statements” section of this MD&A.
INDUSTRY FACTORS
General Business and Economic Conditions in the Regions
in Which We Conduct Business
The Bank operates in Canada, the U.S., and other countries. As a
result, the Bank’s earnings are significantly affected by the general
business and economic conditions in these regions. These conditions
include short-term and long-term interest rates, inflation, fluctuations
in the debt and capital markets, consumer debt levels, government
spending, exchange rates, the strength of the economy, threats of
terrorism, civil unrest, the effects of public health emergencies, the
effects of disruptions to public infrastructure and the level of business
conducted in a specific region. For example, in an economic downturn
characterized by higher unemployment and lower family income,
corporate earnings, business investment and consumer spending, the
demand for the Bank’s loan and other products would be adversely
affected and the provision for credit losses would likely increase,
resulting in lower earnings. Similarly, a natural disaster could cause
business disruptions and/or result in a potential increase in insurance
and liability claims, all of which could adversely affect the Bank’s
results. Also, the financial markets are generally characterized by
extensive interconnections among financial institutions. As such,
defaults by other financial institutions in Canada, the U.S. or other
countries could adversely affect the Bank.
Currency Rates
Currency rate movements in Canada, the U.S., and other jurisdictions
in which the Bank does business impact the Bank’s financial position
(as a result of foreign currency translation adjustments) and its future
earnings. For example, if the value of the Canadian dollar rises against
the U.S. dollar, the Bank’s investments and earnings in the U.S. may be
negatively affected, and vice versa. Changes in the value of the Canadian
dollar relative to the U.S. dollar may also affect the earnings of the Bank’s
small business, commercial, and corporate clients in Canada.
Fiscal, Economic and Monetary Policies
The Bank’s earnings are affected by the fiscal, economic and monetary
policies of the Bank of Canada, the Federal Reserve System in the U.S.,
the U.S. Treasury, the U.S. Federal Deposit Insurance Corporation, and
various other regulatory agencies both in these countries and interna-
tionally. The adoption of new fiscal, economic or monetary policies by
such agencies, changes to existing policies or changes in the supply of
money and the general level of interest rates can impact the Bank’s
profitability. Unintended consequences of new policies or changes to
existing ones can also include the reduction of competition, increased
uncertainty in markets and, in jurisdictions outside Canada, the favour-
ing of certain domestic institutions. A change in the level of interest
rates, or a prolonged low interest rate environment, affects the interest
spread between the Bank’s deposits and loans and as a result impacts
the Bank’s net inter est income. Changes in fiscal, economic or monetary
policies and in the financial markets, and their impact on the Bank, are
beyond the Bank’s control and can be difficult to predict or anticipate.
Level of Competition
The Bank currently operates in a highly competitive industry and its
performance is impacted by the level of competition. Customer retention
and attraction of new customers can be influenced by many factors,
such as the quality and pricing of products or services. Deterioration in
these factors or a loss of market share could adversely affect the Bank’s
earn ings. The Bank operates in a global environment and laws and
regula tions that apply to it may not universally apply to competitors in
various jurisdictions creating an uneven playing field that may favour
certain domestic institutions. In addition, other types of financial institu-
tions, such as insurance companies, as well as non-financial institutions
are increasingly offering products and services traditionally offered by
banks. This type of competition could adversely impact the Bank’s
earn
ings by reducing fee revenue and net interest income.
Changes in Laws and Regulations, and Legal Proceedings
Changes to current laws and regulations, including changes in their
interpretation or implementation, and the introduction of new laws
and regulations, could adversely affect the Bank, such as by limiting
the products or services it can provide, impacting pricing and increas-
ing the ability of competitors to compete with its products and
services. In particular, the most recent financial crisis resulted in, and
could further result in, unprecedented and considerable change to
laws and regulations appli cable to financial institutions and the finan-
cial industry. The Bank’s failure to comply with applicable laws and
regulations could result in sanctions and financial penalties that could
adversely impact its earn ings and damage its reputation.
The Bank, or its subsidiaries, is named as a defendant or is otherwise
involved in various legal and regulatory proceedings, including class
actions and other litigation or disputes with third parties. All of the
Bank’s material legal and regulatory proceedings are disclosed in its
Consolidated Financial Statements. These material pending proceed-
ings include both customer transaction and fraud-related litigation.
There is no assurance that the volume of claims and the amount of
damages and penalties claimed in litigation, arbitration and regulatory
proceedings will not increase in the future. Actions currently pending
against the Bank may result in judgments, settlements, fines, penalties,
disgorgements, injunctions, business improvement orders or other
results adverse to the Bank, which could materially adversely affect the
Bank’s business, financial condition, results of operations, cash flows;
require material changes in the Bank’s operations; or cause serious
reputational harm to the Bank. Moreover, some claims asserted against
the Bank may be highly complex, and include novel or untested legal
theories. The outcome of such proceedings may be difficult to predict
or estimate until late in the proceedings, which may last several years.
In addition, settlement or other resolution of certain types of matters
are subject to external approval, which may or may not be granted.
Although the Bank establishes accruals for its litigation and regulatory
matters according to accounting requirements, the amount of loss
ultimately incurred in relation to those matters may substantially differ
from the amounts accrued. As a participant in the financial services
industry, it is likely that the Bank will continue to experience significant
litigation and regulatory proceedings related to its businesses and
operations. For additional information relating to the Bank’s material
legal proceedings see Note 30 to the Consolidated Financial Statements.
RISK FACTORS AND MANAGEMENT
Risk Factors That May Affect Future Results