TD Bank 2014 Annual Report Download - page 38

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS36
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking net income for the year was $813 million, an
increase of $163 million, or 25%, compared with last year. The
increase in earnings was due to higher revenue and lower PCL,
partially offset by higher non-interest expenses and a higher effective
tax rate. The return on common equity for the year was 17.5%,
compared with 15.6% last year.
Revenue for the year was $2,680 million, an increase of $270 million,
or 11%, compared with last year. Capital markets revenue increased
mainly due to improved trading-related revenue, robust equity and
debt underwriting, and stronger mergers and acquisitions (M&A)
activity. Trading-related revenue increased primarily due to improved
fixed income and equity trading that benefited from strong client
activity. Advisory and underwriting fees increased largely driven by
strong debt and equity markets, and our continued focus on origina-
tions and client focused strategies. In the fourth quarter of 2014, the
Bank implemented a funding valuation adjustment (FVA) in response
to growing evidence that market implied funding costs and benefits
are now considered in the pricing and fair valuation of uncollateralized
derivatives. The implementation of FVA resulted in a pre-tax additional
charge of $65 million recorded in the Wholesale segment. The Bank will
continue to monitor industry practice, and may refine the methodology
and the products to which FVA applies to as market practices evolve.
See Note 5 to the Bank’s 2014 Consolidated Financial Statements for
further information on FVA.
PCL is comprised of 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 $11 million, a decrease of $15 million
compared with last year, and consisted primarily of the accrual cost
of credit protection. PCL in the prior year consisted primarily of the
accrual cost of credit protection.
Non-interest expenses for the year were $1,589 million, an increase
of $47 million, or 3%, compared with last year. Non-interest expenses
increased primarily due to higher variable compensation commensu-
rate with revenue and the impact of foreign exchange translation,
partially offset by lower operating expenses.
CET1 risk-weighted assets were $61 billion as at October 31, 2014,
an increase of $14 billion, or 30%, compared with October 31, 2013.
The increase was primarily due to the inclusion of the Credit Valuation
Adjustment (CVA) capital charge.
KEY PRODUCT GROUPS
Investment Banking and Capital Markets
• Investment banking and capital markets – includes advisory,
underwriting, trading, facilitation, and execution services. Revenue
increased over last year, primarily due to higher trading-related
revenue from improved capital markets activity and strong advisory
and underwriting fees.
Corporate Banking
• Corporate banking – includes corporate lending, trade finance and
cash management services. Revenue increased over last year driven
by higher fee revenue and solid loan volumes.
Equity Investments
• Equity investment portfolio – consists primarily of private equity
investments, which has been almost fully exited. Equity investment
gains were lower than in the prior year.
BUSINESS OUTLOOK AND FOCUS FOR 2015
Overall, we are encouraged by the improvement in capital
markets and the global economy, which continues to show signs
of recovery. However, a combination of regulatory reforms,
uncertainty over the outlook for interest rates, and sustained
geopolitical risks will continue to affect our business. While
these headwinds will likely affect corporate and investor senti-
ment in the medium term, we believe our diversified, integrated
business model will continue to deliver solid results and grow
our franchise. We remain focused on growing and deepening
client relationships, being a valued counterparty, and managing
our risks and productivity in 2015.
Our key priorities for 2015 are as follows:
• Further strengthen alignment with our enterprise partners
and their clients.
• Continue to grow organically by broadening and deepening
client relationships.
• Be a top ranked investment dealer in Canada by increasing
our origination footprint and competitive advantage with
Canadian clients.
• Extend the goals of the Canadian franchise to the U.S. and
expand our service offerings to our North American clients.
• Continue to invest in an efficient, effective, and robust
infrastructure to adapt to industry and regulatory changes.
• Maintain our focus on productivity to enhance client
experience, employee satisfaction, and shareholder value.