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MarketScreener Homepage  >  Equities  >  Toronto Stock Exchange  >  The Toronto-Dominion Bank    TD   CA8911605092


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TD Bank Keeps a Key Perk In Deal -- WSJ

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11/27/2019 | 02:48am EST

By Vipal Monga

TORONTO -- Toronto-Dominion Bank won't reap huge rewards from Charles Schwab Corp.'s proposed $26 billion acquisition of TD Ameritrade Holding Corp, but it managed to hold on to a valuable perk from its 43% stake in Ameritrade.

TD, which will own 13.4% of the combined entity after the all-stock deal closes, renegotiated a sweep agreement that was an important source of low-cost deposits and margin income.

TD, the 10th largest bank by assets in the U.S. according to S&P Global Market Intelligence, will continue to collect fees for maintaining uninvested cash in sweep deposit accounts for Ameritrade's legacy customers until at least 2031.

The sweeps totaled $103 billion at the end of July, according to TD, but Schwab will be able to start reducing the amount by $10 billion a year once the merger is completed, to a floor of $50 billion. The combined entity will also cut the fees it pays TD from the current 0.25% to 0.15%.

The deal "will provide greater stability for our balance sheet," said Bharat Masrani, TD's chief executive, in a call with analysts. He noted that the bank's existing agreement with Ameritrade was set to expire in 2023, and the new agreement with Schwab will extend to 2031.

TD doesn't break out its total gains from the sweep agreement. Meny Grauman, a banking analyst with Cormark Securities, estimated the value of the fees, as well as the investment gains TD makes from investing the money, will fall.

But that is still better than losing the earnings stream entirely, he said. "They made the best of a challenging situation," said Mr. Grauman.

TD executives said the loss in revenue will be offset by gains in the value of its holdings in the larger Schwab entity. The bank estimated adjusted earnings will take a C$25 million ($19 million) hit in the 12 months after the deal closes.

TD expects market value gains from the deal to range between C$4 billion and C$6 billion ($3 billion and $4.5 billion, respectively) if the cost savings Schwab gets from the merger meet its expectations.

TD gained its share in Ameritrade after selling its Waterhouse brokerage for $2.9 billion in 2006. The investment has become an important contributor to earnings.

Ameritrade contributed $230 million to TD's earnings in its fiscal third quarter ended in July, amounting to roughly 9% of the bank's total income of $2.47 billion. That earnings stream was threatened after Ameritrade, following Schwab's lead, eliminated commissions on most trades last month. The fee cuts would have lowered Ameritrade's contribution to TD earnings by roughly a third, or $75 million, according to Mr. Grauman.

"It's not a huge impact, but it's material," he said.

Write to Vipal Monga at vipal.monga@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
TD AMERITRADE HOLDING CORPORATION -4.78% 48.57 Delayed Quote.-2.27%
THE CHARLES SCHWAB CORPORATION -4.92% 46.19 Delayed Quote.-2.88%
THE TORONTO-DOMINION BANK -0.28% 75.77 Delayed Quote.4.04%
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Financials (CAD)
Sales 2020 40 377 M
EBIT 2020 18 330 M
Net income 2020 12 122 M
Debt 2020 -
Yield 2020 4,08%
P/E ratio 2020 11,3x
P/E ratio 2021 10,7x
Capi. / Sales2020 3,40x
Capi. / Sales2021 3,28x
Capitalization 137 B
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Technical analysis trends THE TORONTO-DOMINION BANK
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Mean consensus OUTPERFORM
Number of Analysts 15
Average target price 79,33  CAD
Last Close Price 75,77  CAD
Spread / Highest target 9,54%
Spread / Average Target 4,70%
Spread / Lowest Target -7,62%
EPS Revisions
Bharat B. Masrani Group President, CEO & Non-Independent Director
Brian Michael Levitt Non-Executive Chairman
Riaz E. Ahmed Chief Financial Officer
Michael George Rhodes Group Head-Innovation & Technology
William E. Bennett Independent Director
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