* TD, Laurentian results in line with estimates
* Credit quality helps TD, hurts Laurentian
* Canadian Western outperforms on profit gains (Adds comments from TD CEO, updates shares to close)
By Cameron French
TORONTO, Sept 2 (Reuters) - Strong retail bank results drove quarterly profit higher at Toronto-Dominion Bank (TD.TO) and its smaller rival Laurentian Bank (LB.TO), capping off a reporting period for Canadian banks that featured better credit quality but weak capital markets earnings.
Shares of the two banks ended mixed in Toronto on Thursday, and both lagged tiny Canadian Western Bank CWB.TO, which jumped 3.1 percent a day after the regional lender reported an unexpectedly big jump in results.
TD, Canada’s second-largest bank, earned C$1.18 billion ($1.12 billion), or C$1.29 a share, in its financial third quarter, up from a profit of C$912 million, or C$1.01 a share, a year earlier.
Stripping out several items, adjusted profit was C$1.43 a share, about even with analysts’ expectations of a C$1.44 a share profit, as polled by Thomson Reuters I/B/E/S.
Profit from TD’s flagship Canadian retail banking operations rose 24 percent to C$841 million, while income at TD’s U.S. franchise, which includes more than 1,000 branches in the Eastern United States, climbed 30 percent to $276 million.
“The positive for the quarter at TD is the continued growth that they’re getting from their retail franchise, and this is on both sides of the border,” said John Aiken, an analyst at Barclays Capital.
But TD Chief Executive Ed Clark told a conference call that its U.S. operations could come under pressure due to sluggish economic growth and due to recently passed U.S. banking reform legislation that will affect how banks can charge customers.
“It’s likely that we’re going to see slower revenue growth for the next few quarters as we absorb the impact of these changes,” he said.
Like the other banks that make up Canada’s “Big Six,” TD benefited in the quarter from fewer loan defaults as the economy stabilized somewhat and the credit crisis eased.
This allowed the bank to reduce provisions for bad loans to C$339 million from a year-before C$557 million.
Wholesale banking income fell 45 percent to C$179 million, also following the trend of TD’s rivals, as trading and underwriting revenues were hurt by the European debt crisis.
Tier 1 capital ratio, a measure of the bank’s financial stability, rose to 12.5 percent from 11.1 percent as TD stockpiled capital ahead of capital and liquidity reforms that are to be unveiled by the Basel banking committee in November.
Uncertainty over how much capital Canada’s banks will have to maintain in the future has forced them to put dividend increases and large acquisitions on hold.
“We’re hoping that by the first quarter... in the context of the board’s outlook on earnings and the bank’s dividend policy, we should be able to provide you with some guidance,” Clark said.
Unlike TD, credit quality hurt Laurentian’s bottom line, as loan losses rose to C$20 million from C$16 million, due in part to a C$5 million loss on a bad commercial loan.
Canada’s No. 7 bank earned C$30.1 million, or C$1.13 a share, in the quarter, in line with analysts’ estimates, and up from a year-before profit of C$28.7 million, or C$1.08 a share.
TD shares ended the session up 1.5 percent at C$73.17, while Montreal-based Laurentian fell 1.8 percent to C$46.70.
The strongest stock market performer among Canadian banks was Canadian Western, which rose 3.1 percent to C$25.25.
Edmonton, Alberta-based CWB said late on Wednesday it earned C$46.6 million, or 59 Canadian cents a share, in the quarter, up from C$28.7 million, or 38 Canadian cents a share, the year before.
Stripping out certain tax items, the regional bank earned 48 Canadian cents a share, ahead of analysts’ per-share estimates of 45 Canadian cents.
Macquarie analyst Sumit Malhotra called the results solid, and said in a note he expects CWB will one of the first Canadian banks to raise its dividend.
$1=$1.05 Canadian Reporting by Cameron French; editing by Peter Galloway