TD Bank Financial Group has announced a strategy to deal with its credit challenges. Under this new strategy, TD will split its corporate lending business into “core” and “non- core” relationships.

In addition, driven by deterioration in the utilities sector creating higher than anticipated impaired loan formations, TD announced that it was increasing its specific loan loss provisions and taking additional one-time provisions of $600 million.

“Our existing credit challenges have been aggravated by recent further deterioration in the utilities sector. To that end, we determined that the shift in strategy that we announced in July was not only appropriate, but one which we should be pursuing faster and more aggressively,” says Charles Baillie, chairman and CEO of TD Bank Financial Group.

As a result of higher than anticipated new formations of impaired loans for the end of the fiscal year, TD will be taking a higher specific loan loss provision for the quarter of $350 million versus the $175 million guidance previously provided. $263 million of the provision will be against three relationships in the utilities sector. In addition, TD will also draw $185 million in this quarter from the $600 million telecom sectoral that it announced in July. TD indicated that its loan losses in the personal and commercial bank will come in at expected levels.

The non-core loan portfolio comprises approximately $11 billion in corporate loans or about half of TD’s total corporate loans. About 55% of this is telecommunications and utilities and is primarily non-Canadian loans. TD’s emphasized that the non-core portfolio is 40% investment grade.

“As a second step to address our credit challenges we will be taking additional one-time provisions of $600 million. Combined with the remaining $415 million telecom and $250 million US corporate sectorals, we will have $1.265 billion in provisions against the non-core portfolio,” says Ed Clark, TDBFG president and COO. The effect of this provisioning will produce a loss for the quarter in the range of $0.07 to $0.12 cents per share on a fully diluted cash operating basis or $0.31 to $0.36 cents per share on a reported GAAP basis. Additional information will be provided when TDBFG announces its fourth quarter results at the end of the month.

“It is clearly not a good time for us, and I am deeply disappointed that we are delivering this news – our shareholders deserve better,” says Baillie. “With today’s aggressive actions we have dramatically changed the risk profile of the Bank.”