‘Canadian deposits are going to be much more resilient’
Article content
An earnings beat by the Charles Schwab Corp. may take some of the heat off the Toronto-Dominion Bank stakeholder, which has found itself in the crosshairs of short sellers and lagged its Canadian peers in recent months in part due to its 12 per cent holding in the US financial services company.
Advertisements 2
Article content
Charles Schwab’s profits grew by 14 per cent year-over-year in the first quarter to $1.6 billion. On an adjusted basis, the bank’s earnings of 0.93 per share surpassed Bloomberg analyst expectations of 0.90 per share.
Article content
It wasn’t all good news, however, for the US bank. Schwab’s deposits dropped by 11 per cent — or $41 billion — after a crisis at Silicon Valley Bank sparked concerns about deposit runs at all but the largest US banks. While the deposit decline could spell trouble is more clients shift to accounts with higher yields, the market shrugged it off for now. Schwab shares were trading up over two per cent in the early afternoon in New York, while TD’s were up by less than one per cent, more or less in line with the rest of the Canadian banking sector.
Article content
Advertisements 3
Article content
Canccord Genuity analyst Scott Chan said that while it was good to see the beat, expectations were a lot lower for banks such as Charles Schwab following the Silicon Valley Bank collapse and ensuing bank crisis.
“Earnings expectations have been significantly lower at Schwab over the past three months,” Chan said. “To put it in perspective, according to Bloomberg, Schwab’s earnings for 2023 was revised down 25 per cent (for) all of 2023, and then 2024 at this point, it’s revised down 20 per cent.”
Chan said Schwab’s results likely won’t have a material impact on earnings at TD, which is more exposed to the US than its Big Six peers due to the Schwab stake and its planned acquisition of Tennessee-based First Horizon Corp. The banking crisis that unfolded in the wake of the SVB collapse hit TD the hardest, sending its shares tumbling by as much as 11 per cent last month to a low of $77.33 on March 23, erasing $18 billion in value. They’ve since pared some of those losses and were trading at $81.59 on April 17.
Advertisements 4
Article content
The crisis left a bigger scar on Schwab’s shares, which fell nearly 32 per cent in the same timeframe.
Another large US bank, State Street Corp., also reported a decline in deposits April 17, a sign that people are still worried about US bank stability in the wake of the SVB crisis.
Shares of State Street, a custodian bank that depends on fees paid by other financial firms, plunged as a result of the deposit flight and its effect on earnings, plunging 17 per cent to a low of $66.45.
-
Rise in short bets against TD is much ado about nothing, analysts say
-
SVB banking crisis adds uncertainty to TD’s deal for First Horizon
-
TD beats expectations
Chan said he didn’t see the same deposit flight happening to TD, or any of the other Canadian banks.
“I think Canadian deposits are going to be much more resilient,” Chan said. “I don’t think this has impacted clientele here. Deposit growth was positive last quarter and on a sequential basis, so I don’t think the US banking side is going to affect the Canadian banks that have domestic operations. That’s more the US side that would be impacted.”
• Email: [email protected] | Twitter: StephHughes95
Comments
Postmedia is committed to maintaining a lively but civil forum for discussion and encourages all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.
Join the Conversation