- Toronto-Dominion Bank (TSX:TD) & Scotiabank (TSX:BNS) reported slump in Q3 2020 profits.
- Both the banks created significant provisions for bad loans, indicating a rather grim outlook for the rest of 2020.
- Lower spending and borrowing by consumers during the pandemic times has not bode well for the Canadian bank stocks. But they are on a slow road to recovery.
Despite pessimistic forecasts on Canadian economy, bank stocks such as the Toronto-Dominion Bank (TSX: TD) and the Bank of Nova Scotia (TSX: BNS) have managed to weather the market downturns. Lower spending and borrowing by consumers during the pandemic times, increasing layoffs and rise in unemployment rate has not bode well for the Canadian bank stocks in the recent times, but yes, they are on a slow road to recovery.
While slump in profits was observed in the first quarter of this year, the high bad loan provisions indicated a rather grim outlook for the rest of 2020.
Both the banks created significant provisions for credit losses. For Scotiabank, the figure surged to C$ 2.1 billion in third quarter 2020 from C$ 713 million in Q3 2019. For TD Bank, the amount stood at C$ 2.18 billion in its latest quarter, up from C$ 655 million same quarter last year.
Toronto-Dominion Bank is well-positioned with a strong presence in the United States and Canada. Likewise, The Bank of Nova Scotia, operating as ‘Scotiabank’, has a strong base in domestic markets and in Pacific Alliance countries. Scotiabank is exploring possibilities and potential for growth in Latin American markets.
The Toronto-Dominion Bank (TSX: TD)
Current TD Stock Price: C$ 63.28
Toronto-Dominion is one of the most actively traded bank stocks in the Canadian market. The lender has a current market capitalization of C$ 114.78 billion. It paid out quarterly dividends of C$ 0.79 and currently yields 4.99 per cent.
The bank operates in three core segments namely: US retail banking, Canadian retail banking and wholesale and corporate banking.
TD STOCK PERFORMANCE
The stock is currently trending on the TSX with a 10-day average trading volume of 6.64 million. TD stock offers return on equity (RoE) at 11.17 per cent and return on assets at 0.60 per cent. The profit-to-book (P/B ratio) is 1.323 and profit-to-earnings (P/E) ratio is 12.10, as per data on the TMX Group.
TD stocks are down 13 per cent year-to-date. However, in the last six months, the scrips have gained five per cent in six months and up 7.7 per cent in three months.
TD FINANCIAL RESULTS
Coming to the bank’s financials, the reported diluted earnings per share has decreased to C$ 1.21 in the third quarter of 2020, compared to C$ 1.74 in Q3 2019. Reported net income plunged from C$ 3.2 billion in Q3 2019 to C$ 2.248 billion in Q3 2020.
Adjusted net income also went down from C$ 3,338 million in Q3 2019 to C$ 2,327 million in Q3 2020.
The US retail net income saw a decrease by 48 per cent to C$ 637 million from Q3 2019, while the wholesale banking reported net income of C$ 442 million in Q3 2020, an uptick by 81 per cent from Q3 2019.
Year-on-year, the bank’s RoE decreased to 10 per cent in the latest quarter from 15.8 per cent in Q3 2019. Basic earnings per share (EPS) fell to C$ 1.25 in July 2020 from C$ 1.79 same month last year.
The Bank of Nova Scotia (TSX: BNS)
Current Stock Price: C$ 55.44
One of Canada’s largest international banks, Scotiabank’s operations span across the globe, but is primarily focused in Central and South America markets. The bank received the Innovation in Digital Banking in North America award in August this year. It is known for implementing various digital solutions to provide financial support to customers during COVID-19 times.
In a recent statement, the lender expressed its commitment to mobilizing C$ 100 billion by 2025 towards climate changing measures. The financial institution also committed C$ 3 billion towards supporting women-led businesses in Canada under the Scotiabank Women InitiativeTM. Women comprise of 38 per cent of senior leadership at the bank.
BNS STOCK PERFORMANCE
This leading international bank has a market capitalization of C$67.77 billion, with a quarterly dividend payout of C$ 0.90 to be issued on October 28, 2020 and a dividend yield of 6.43 per cent.
The bank’s profit-to-earnings (P/E) ratio is 9.80. The year-to-date performance of the bank stock has decreased by 22.74 per cent from 72.42 per cent in January 2020 to 55.95 per cent in October 2020. The BNS stock offers return on equity (RoE) at 10.94 per cent and return on assets at 0.62 per cent. The profit-to-book (P/B ratio) is 1.078 and profit-to-cash flow ratio (P/CF) is 1.30, as per data on the TSX.
BNS stocks are down 24 per cent this year. However, the stocks have gained 2.4 per cent in the last three months and mostly trading flat in a month’s time.
BNS FINANCIAL RESULTS
In the third quarter of this fiscal year, the bank reported net income of C$ 1.3 billion, as compared to C$ 1.98 billion in Q3 2019. Diluted earnings per share (EPS) was C$ 1.5 in the latest quarter, down 31 per cent from C$ 1.5 same time last year. Return on equity stood at 8.3 per cent compared to 11.5 per cent in the previous year.
The returns on equity fell to 8.3 per cent, impacted by the higher loan loss provisions of C$ 2,181 million this quarter.