TD Shines Amid Big Six Banks' Strong Q3 Earnings
All six of Canada's major banks, known as the Big Six, reported better-than-expected earnings for the third quarter. This is a welcome surprise, given concerns about trade uncertainty and geopolitical tension.
The banks saw growth in various areas, including capital markets, commercial banking, and wealth management. Royal Bank of Canada (RBC) exceeded expectations due to its strong performance across these divisions. Profit rose 11% to $6 billion, with adjusted earnings per share of $4.28, outpacing analyst forecasts.
Toronto-Dominion Bank (TD) also delivered impressive results, with profit climbing 38% to $4.62 billion and adjusted EPS beating estimates. The bank plans to open 100 new U.S. branches by the end of 2028, pending regulatory approval. TD's Common Equity Tier 1 ratio of 14.3% is the highest among the Big Six, providing a strong foundation for lending, buybacks, and dividends.
BMO faced challenges due to charges tied to the sale of its transportation and vendor finance business, but excluding these items, adjusted profit rose 19%. National Bank of Canada saw a 23% profit gain, driven by personal banking, capital markets, and wealth management. CIBC reported a 15% profit increase, with domestic business growing while loan losses remained manageable.
The banks' strong earnings were largely driven by their capital markets businesses. However, investors should be cautious when evaluating bank stocks, as prices have risen significantly. The sector now trades near 15 times forward earnings, the highest level since 2010 and well above the 10.8 times ten-year average.
TD stands out among the group due to its strongest earnings beat of the season, with adjusted EPS coming in at $2.77, up 26% and roughly $0.30 above consensus. The bank's U.S. remediation work is ongoing, but if it completes this process and continues to expand earnings, today's premium may look reasonable in hindsight.