Summary

• The top banks of Canada bore the brunt of massive credit losses in the light of the COVID-19 pandemic.
• The S&P/TSX Banks Index declined 13.18 per cent year-to-date.
• Stocks of Canadian Imperial Bank Of Commerce (TSX:CM) and Toronto-Dominion Bank (TSX:TD) have rebounded in the last six months, emerging as investor favorites.

The coronavirus-triggered market crash in March 2020 saw bank stocks plummet on the Toronto Stock Exchange. Over the next few months, however, shares of banks like Canadian Imperial Bank Of Commerce (TSX:CM) and Toronto-Dominion Bank (TSX:TD) have made quite a recovery. These two bank stocks are currently witnessing heavy activity on the TSX.

The COVID-19 pandemic brought on economic challenges aplenty all over the world. The ‘Big Six’ banks in Canada deferred loan payments and lowered interest rates to ease the pressure on people. This created massive provisions for credit losses. As a result, banks took a major hit which, in turn, caused their stocks to lose appeal among investors. The S&P/TSX Banks Index registered a 13.18 per cent year-to-date fall in value.

The Financial System Review 2020, an analysis reported by the Bank of Canada’s Governing Council, claimed that the ‘Big Six’ banks have a capital and mortgage insurance system strong enough to weather these unprecedented times. Some experts also feel that having been through times like the 2008-2009 Great Recession and the downturns of 1981–1982 and 1990–1992, Canada’s banking system is sturdy enough to survive the pandemic.

As the stocks of Canadian Imperial Bank Of Commerce and Toronto-Dominion Bank perform well, let us look at their performances closely.

Canadian Imperial Bank Of Commerce (TSX:CM)
Current Stock Price: C$ 102.47

Commonly known by its abbreviation ‘CIBC’, Canadian Imperial Bank Of Commerce is among the ‘Big Six’ banks of Canada. During the market crash, the CIBC stock price plunged to C$ 67.61 on 24 March, its lowest point in five years. But it has made a steady recovery since, climbing 32 per cent in the last six months. Although the share value has seen a decline of about 5 per cent year-to-date, it is currently outperforming the market and has recorded an average trading volume of 1.9 million in the last 10 days.

There was a lot of anticipation in August-end around Canada’s top banks releasing their quarterly financial results. As analysts had expected, most Canadian banks, including the CIBC, have suffered major setback due to the pandemic. The CIBC recorded an adjusted net income of C$ 1.24 billion, down 12 per cent year-over-year (YoY) in its third quarter ending 31 June 2020. Its adjusted diluted earnings per share (EPS) was C$ 2.71, down 13 per cent YoY. Its total revenue was C$ 4.7 billion in Q3 2020, down from C$ 4.73 billion in Q3 2019.

In the latest quarter, the CIBC’s provision for credit losses was C$ 525 million, up from C$ 291 million in Q3 2019. The bank’s financial statement pointed that the increased provisions for bad loans was a result of the impact of the pandemic and continued strain on oil prices.

The CIBC was formed following a merger between the Canadian Bank of Commerce and the Imperial Bank of Canada in 1961. It has a market cap of C$ 45.6 billion at the moment and pays a quarterly dividend of C$ 1.46, as per data of the TSX. The dividend currently yields 5.7 per cent. Its price-to-book (P/B) ratio is 1.23 and price-to-cash flow (P/CF) ratio is 0.7.

The Toronto-Dominion Bank (TSX:TD)
Current Stock Price: C$ 62.32

After hitting a low of C$ 49.28 on March 24 amid the pandemic-inflicted market crash, stock price of the Toronto-Dominion Bank has climbed nearly 42 per cent in about six months. Though its price has recorded a 14 per cent YTD decline, the shares have put up a good fight against the market volatility. Toronto Dominion scrips are currently trending on the stock market, with a 10-day average trading volume of 4.3 million.

Despite the challenging times of COVID-19, Toronto-Dominion continues to pay a quarterly dividend of C$ 0.79. Currently, the dividend yield stands at 5.05 per cent, as per TSX data. Its price-to-earnings (P/E) ratio is 11.30 and price-to-book (P/B) ratio is 1.28. The bank’s current return on equity is 11.17 per cent, while its return on assets is 0.60 per cent.

In its third quarter ending 31 July 2020, Toronto-Dominion recorded adjusted earnings of C$ 2.3 billion, down 30 per cent YoY. Its total revenues in Q3 2020, amounting to C$ 10.67 billion, were slightly up from C$ 10.5 billion in Q3 2019. The pandemic’s impact reflected on the bank’s provision for credit losses in the latest quarter, which increased significantly year-over-year to C$ 2.19 billion.

The Toronto-Dominion Bank came into being in 1965 after a merger between the Bank of Toronto and the Dominion Bank. While the blow of the COVID-19 outbreak this year has left a mark on its performance, share price of Toronto-Dominion is slowly inching towards its pre-pandemic levels.