TD Bank’s earnings from Charles Schwab to drop 30%

Canadian lender TD Bank Group anticipates a big decrease in earnings from its investment in the US financial services giant Charles Schwab Corp.

The Toronto-based bank projects that its stake in Schwab will yield 141 million Canadian dollars ($104.4 million) in reported equity income for the first quarter of fiscal 2024. The figure is lower by 30% from the previous year when the bank reported 285 million Canadian dollars in net income from its Schwab investment.

This forecast adjustment follows Schwab’s recent quarterly report, which showed a decline in net income. For the quarter ended December 31, Schwab reported a net income of $1.05 billion on revenue of $4.46 billion, a decrease from $1.97 billion on $5.5 billion revenue a year earlier.

TD Bank Group’s revised expectations stem from Schwab’s latest financial performance, combined with several adjustments. These adjustments include stripping out acquisition-related charges of about C$9 million, restructuring charges of C$27 million, a special assessment by the Federal Deposit Insurance Corp. of C$22 million, and amortization of acquired intangibles of C$31 million from its initial investment of about C$230 million.

According to Canaccord analyst Matthew Lee, Schwab’s results were slightly better than expected, but the financial firm’s outlook for the year was disappointing. Lee highlighted that recent U.S. bank earnings indicate ongoing pressures on net income, improvements in capital markets, and continued credit challenges, particularly concerning commercial real estate loans.

Lee suggests that among Canadian banks, BMO and RBC are likely to benefit most from the improvements in U.S. capital markets. However, TD Bank Group’s earnings are expected to be further impacted by softer net interest income, reflecting the broader trends and challenges in the banking sector.

TD Bank Group will release its first quarter financial results and host an earnings conference call on February 29, 2024.