Charts and graphs

TD Bank Group says it expects to earn about $141 million in equity net income in its first quarter of 2024 from its holdings in Charles Schwab as U.S. banks report earnings.

Last year, TD reported $285 million in net income in its first quarter from its investment in Schwab.

TD says adjusted net income should work out to about $230 million, for about a 30% drop from last year’s $328 million.

Canaccord Genuity analyst Matthew Lee says the Schwab results came in slightly higher than expected, but that the financial firm’s outlook for the year disappointed.

Lee said key takeaways for the year from U.S. bank earnings in recent days are net income pressure, improved capital markets and continued credit challenges on commercial real estate loans, some of which translate into Canadian trends as well.

“In terms of cross-border read-throughs, we expect the Canadian banks to see similar trends in capital markets and loan growth but do not necessarily expect to see the same level of [net interest margin] pressure as mortgage renewals help to offset increasing deposit costs.”

Lee said BMO and RBC should benefit the most from improvements in U.S. capital markets, while TD will be most affected by softer net interest income in the country.

Carl De Souza, head of Canadian banking at Morningstar DBRS, said that while banks on both sides of the border face many similar trends, Canadian consumers are much more indebted than in the U.S., so are more rate sensitive.

“Canadian consumers and businesses will continue to get pressured as more loans continue to reprice at much higher rates as they mature.”

Expense control has been a big focus across the banking sector, including Citigroup announcing last week it plans to cut 20,000 jobs over the next two years.

De Souza said that while Canadian banks have already taken steps to reduce expenses, including layoffs, he expects cost control to continue to be a focus and is not ruling out more cuts.

“I wouldn’t say they’re totally done, but what happens is also heavily dependent on how the economy plays out, how credit quality plays out, you know, unemployment and those macro variables play out, because there’s still a lot of uncertainty with respect to the macroeconomic environment.”