August 28, 2008 / 11:55 AM / in 10 years

UPDATE 2-TD Bank profit falls, but bank hikes dividend

(Adds analyst comment, details on U.S. banking profit)

By Lynne Olver

TORONTO, Aug 28 (Reuters) - Toronto-Dominion Bank (TD.TO) said third-quarter net income fell 10 percent as a difficult capital markets environment slashed wholesale banking profit.

Although earnings were slightly below market expectations, TD was the only Canadian bank to boost its dividend this quarter and its shares rose 2 percent in early trading.

TD, Canada’s second-largest bank, said it earned C$997 million ($949 million), or C$1.21 per share, in the three months ended July 31. That was down from C$1.1 billion, or C$1.51 a share, a year earlier.

It raised its quarterly dividend to 61 Canadian cents a share from 59 Canadian cents.

The bank had previously announced a charge of C$96 million in its TD Securities unit because of improperly priced derivatives in its London office, which reduced earnings per share by 8 Canadian cents.

“This was a tough quarter for our wholesale bank,” Chief Executive Ed Clark said in a statement, calling the mispricing “particularly disappointing” and saying the bank was doing a thorough review of its risk management practices.

Adjusted for items including amortization of intangibles and restructuring charges, the bank earned C$1.35 per share. This would have been C$1.43 without the derivatives charge.

Analysts had expected profit of C$1.45 per share before items, according to Reuters Estimates.

“TD’s numbers were a little weaker than expected,” said Darko Mihelic, an analyst at CIBC World Markets.

“Having said that, they did well where it matters. TD Canada Trust put in a better result than we expected, and U.S. banking was better than their own guidance.”

TD Canada Trust, the Canadian retail business, posted an 8 percent rise in profit to C$644 million.

TD cited strong volume growth across most banking products, particularly deposits, real estate secured lending and credit cards, including revenue from its U.S. credit card business.

In its U.S. personal and commercial banking unit, which now includes New Jersey-based Commerce Bancorp, earnings more than doubled to C$244 million.

Adjusted profit was C$273 million, excluding charges for restructuring and integrating Commerce Bancorp with TD Banknorth, its U.S. retail bank operation in New England.

As with other Canadian banks, TD raised its provisions for credit losses. Provisions jumped 68 percent to C$288 million.

Overall return on equity, a key profit measure, was 13.4 percent in the quarter, down from 21 percent a year earlier.

TD shares were trading at C$60.48, up C$1.14 in early trading.

$1=$1.05 Canadian Reporting by Lynne Olver; editing by Ted Kerr

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