TD Bank 2014 Annual Report Download - page 177

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 175
Certain of the Bank’s derivative contracts are governed by master
derivative agreements having credit support provisions that permit the
Bank’s counterparties to call for collateral depending on the net mark-
to-market exposure position of all derivative contracts governed by that
master derivative agreement. Some of these agreements may permit the
Bank’s counterparties to require, upon the downgrade of the senior debt
ratings of the Bank, to post additional collateral. As at October 31,
2014, the fair value of all derivative instruments with credit risk related
contingent features in a net liability position was $9 billion (October 31,
2013 – $8 billion). The Bank has posted $7 billion (October 31, 2013 –
$6 billion) of collateral for this exposure in the normal course of busi-
ness. As at October 31, 2014, the impact of a one-notch downgrade in
the Bank’s senior debt ratings would require the Bank to post an addi-
tional $293 million (October 31, 2013 – $254 million) of collateral to
that posted in the normal course of business. A two-notch down grade
in the Bank’s senior debt ratings would require the Bank to post an addi-
tional $327 million (October31, 2013 – $315 million) of collateral to that
posted in the normal course of business.
INVESTMENT IN ASSOCIATES AND JOINT VENTURES
NOTE 12
Bank’s ownership percentage to exceed 45%, the Bank is required to
use reasonable efforts to sell or dispose of such excess stock, subject
to the Bank’s commercial judgment as to the optimal timing, amount
and method of sales with a view to maximizing proceeds from such
sales. However, beginning January 24, 2016, in the event that stock
repurchases by TD Ameritrade cause the Bank’s ownership percentage
to exceed 45%: (1) the Bank has no absolute obligation to reduce its
ownership percentage to 45% by the termination of the Stockholders
Agreement; and (2) stock repurchases cannot result in the Bank’s
ownership percentage exceeding 47%.
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank designated five of twelve
members of TD Ameritrade’s Board of Directors including the Bank’s
Group President and Chief Executive Officer, its former Group President
and Chief Executive Officer, two independent directors of TD, and a
former independent director of TD.
TD Ameritrade has no significant contingent liabilities to which
the Bank is exposed. During the years ended October 31, 2014, and
October 31, 2013, TD Ameritrade did not experience any significant
restrictions to transfer funds in the form of cash dividends, or repay-
ment of loans or advances.
The condensed financial statements of TD Ameritrade, based on its
consolidated financial statements, are included in the following table.
INVESTMENT IN TD AMERITRADE HOLDING CORPORATION
The Bank has significant influence over TD Ameritrade Holding Corpo-
ration (TD Ameritrade) and accounts for its investment in TD Ameritrade
using the equity method. As at October 31, 2014, the Bank’s reported
investment in TD Ameritrade was 40.97% (October 31, 2013 – 42.22%)
of the outstanding shares of TD Ameritrade with a fair value of $8 billion
(October 31, 2013 – $7 billion) based on the closing price of US$33.74
(October 31, 2013 – US$27.26) on the New York Stock Exchange.
On December 6, 2013, the Bank completed a private sale of
5.5 million shares of its investment in TD Ameritrade. The shares were
sold at a price of US$28.22, a 3% discount to the market price of
US$29.09. On February 13, 2014, the Bank completed another private
sale of 4 million shares of its investment in TD Ameritrade. The shares
were sold at a price of US$32.05, a 3.3% discount to the closing
market price of US$33.14. For the year ended October 31, 2014,
the Bank recognized gains on the sale of TD Ameritrade shares of
$85 million after tax, respectively. During the year ended October 31,
2014, TD Ameritrade repurchased 8.5 million shares (for the year
ended October 31, 2013 – nil), resulting in the Bank’s ownership posi-
tion in TD Ameritrade of 40.97% as at October 31, 2014. The Bank
will continue to account for its investment using the equity method.
On December 5, 2013, the Stockholders Agreement was extended
by five years to January 24, 2021, and amended such that beginning
January 24, 2016, if stock repurchases by TD Ameritrade cause the
Condensed Consolidated Balance Sheets1
(millions of Canadian dollars) As at
September 30 September 30
2014 2013
Assets
Receivables from brokers, dealers, and clearing organizations $ 1,249 $ 1,406
Receivables from clients, net 13,118 9,368
Other assets 12,493 11,994
Total assets $ 26,860 $ 22,768
Liabilities
Payable to brokers, dealers, and clearing organizations $ 2,729 $ 2,057
Payable to clients 16,340 13,746
Other liabilities 2,440 2,089
Total liabilities 21,509 17,892
Stockholders’ equity2 5,351 4,876
Total liabilities and stockholders’ equity $ 26,860 $ 22,768
1
Customers’ securities are reported on a settlement date basis whereas the Bank
reports customers’ securities on a trade date basis.
2
The difference between the carrying value of the Bank’s investment in TD Ameritrade
and the Bank’s share of TD Ameritrade’s stockholders’ equity is comprised of
goodwill, other intangibles and the cumulative translation adjustment.