TORONTO, Dec 11 (Reuters) - Toronto-Dominion Bank (TD.TO), one of four lenders to the consortium that had planned to buy telecoms company BCE Inc (BCE.TO), will get a future income lift because of the deal’s failure, TD Bank Chief Financial Officer Colleen Johnston said on Thursday.
Accounting rules prompted TD to set aside reserves to reflect the fair value of its debt commitment after the deal was announced 18 months ago, she told an investor conference on Thursday.
“We were required to mark-to-market our commitment on that lending exposure and we have been steadily taking reserves on that position since the third quarter of 2007,” Johnston said at the Goldman Sachs financial services conference in New York.
“We do have a (BCE) reserve that will come back into income. We’re not disclosing the size of that reserve, but that will be positive in terms of our P&L,” she said, referring to the profit and loss statement.
Montreal-based BCE, Canada’s biggest telecoms company, struck an agreement to be bought by Ontario Teachers’ Pension Plan and three U.S.-based private equity partners about a year and a half ago.
The C$34.8 billion ($28.3 billion) deal, which would have been the world’s largest leveraged buyout, was derailed when accountants concluded that the new company would fail a key solvency test because of its huge debt load.
Johnston said that TD Bank’s Tier 1 capital ratio, which currently stands at 9.1 percent, will improve by 15 basis points because of changes to the bank’s risk-weighted assets as a result of the BCE sale falling through.
TD’s Tier 1 ratio should rise in the coming year along with retained earnings, she also said.
Some analysts have speculated that TD — fresh from a C$1.4 billion common share offering — might have to raise more capital, as its Tier 1 ratio is now at the low end of the range for Canadian banks, and investors are demanding higher cushions these days because of the global financial crisis.
But Johnston said the existing Tier 1 ratio “makes perfect sense” and TD’s high percentage of earnings from retail banking provides “a very solid anchor.”
“I do expect that we’ll continue to grow that ratio over the course of the year ... based on where we see earnings going and growth in retained earnings over that period,” she said.
$1=$1.23 Canadian Reporting by Lynne Olver; editing by Rob Wilson