November 20, 2008 / 2:49 PM / 9 years ago

UPDATE 3-TD Bank sees C$350 mln trading charge, stock drops

(Adds CEO and analyst comments, updates share price, changes dateline from Ottawa)

By Lynne Olver

TORONTO, Nov 20 (Reuters) - Toronto-Dominion Bank (TD.TO) said on Thursday that the “dramatic” lack of liquidity in global credit markets will prompt charges of C$350 million ($273 million) for credit-trading losses, reducing its fourth-quarter earnings.

Shares of Canada’s second largest bank fell to a four-year low on Thursday morning, before paring some of the losses. Other bank stocks were also down amid a general stock market selloff on weak economic data and continued concern about U.S. automakers.

TD is the second Canadian bank to pre-release portions of its upcoming fourth-quarter report. Bank of Nova Scotia (BNS.TO) said on Tuesday it would take quarterly charges of C$595 million after tax, and analysts expect their rivals to take capital markets-related writedowns too.

“We can reasonably expect the remaining Big 6 banks to incur similar charges,” Dundee Securities analyst John Aiken said in a research note on Thursday. “It will only be the degree which varies.”

TD forecast net earnings per share of C$1.22 for the quarter ended Oct. 31, including a one-time litigation reserve gain, and adjusted earnings of C$642 million, or 79 Canadian cents a share.

Analysts had expected profit of C$1.19 a share on a net basis, and C$1.39 before items, according to Reuters Estimates.

TD Bank gets a smaller percentage of its profit from wholesale banking operations than other banks do.

But TD President and CEO Ed Clark said market conditions had gone “from bad to worse” in September and October.

The bank could not escape “the most extraordinary markets since the Great Depression” and had to mark down the value of assets, Clark told a conference call.

“We believe we have the bulk of the losses behind us,” he said, adding he was disappointed with the trading charge in TD Securities’ credit products group.

“With hindsight, we clearly should have wound these positions down sooner.”

The trading losses will contribute to an expected loss of C$228 million in its TD Securities wholesale unit for the quarter.

On the other hand, TD sees earnings of C$1.05 billion from its Canadian and U.S. retail segments in the quarter.

That meets its 2008 profit target of C$4 billion from retail banking, despite tough conditions in the wealth management business, Clark said on the call.

In the U.S. particularly, consumers have seen their home equity and investment assets tumble in value and “there’s definitely going to be upward pressure” on U.S. provisions for loan losses, Clark said.

But U.S.-dollar profits will translate into higher results in Canadian currency with the recent weakness in the Canadian dollar, he added.

TD Bank shares tumbled as low as C$44.60 on Thursday morning, their lowest level since August 2004. By early afternoon, the stock was down 5.6 percent at C$47.11 on the Toronto Stock Exchange. Most other bank and insurance stocks were down by a similar amount, although Canadian Imperial Bank of Commerce (CM.TO) was off 8.8 percent at C$44.02.

TD, which reports full results on Dec. 4, also said it expects some one-time items to affect its bottom line, including a positive adjustment of C$323 million, after tax, due to the partial release of a litigation reserve for Enron-related claims.

Fourth-quarter reporting is set to kick off next week, with Bank of Montreal (BMO.TO).

$1=$1.28 Canadian Additional reporting by Susan Taylor in Ottawa; editing by Rob Wilson

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