TD, RBC miss profit estimates as bad loan provisions climb; CIBC beats By Reuters

By Nivedita Balu and Niket Nishant

(Reuters) – Canada’s two biggest lenders, TD and Royal Bank of Canada, missed analysts’ estimates for quarterly earnings on Thursday as tough economic conditions spurred the banks to make higher provisions for borrowers falling behind on repayments.

TD, which called off its $13-billion acquisition of U.S.-based First Horizon (NYSE:) this month, said it does not expect to meet its medium-term adjusted earnings growth target range of 7% to 10% due to the failure of the deal.

“We’re confident that this was the right decision,” TD Chief Financial Officer Kelvin Tran said in an interview.

TD’s bid for First Horizon was expected to boost its expansion into the United States, a strategic priority for the Canadian bank as it looks outside of its home market, but the collapse of the deal has left investors wondering where it will find its next avenue for growth.

Tran said the bank, Canada’s second-biggest lender, was still focused on its retail network expansion in the U.S. to accelerate organic growth.

TD said on Thursday it would buy back 30 million common shares.

“While credit and its own deposit performances were solid, we do not believe that the less than 2% share repurchase plan will generate much valuation support,” Barclays (LON:) analyst John Aiken said.

For RBC, higher-than-forecast expenses were the culprit in the quarter, Aiken said. Most of the big banks noted a rise in expenses related to technology investments and employee-related costs.

“We didn’t foresee this environment nine months ago. We didn’t see the velocity of deposits moving out of core demand into higher yield at that rate, it started before the U.S. banking crisis,” RBC CEO Dave McKay told analysts.

“It accelerated during the crisis. And that caused a real shot to our overall forecast.”

McKay said the bank now plans to reduce expenses by managing headcount growth through attrition and slower hiring. 

The banks’ quarterly results followed those of Bank of Montreal and Bank of Nova Scotia, which missed quarterly earnings estimates on Wednesday due to higher provisions, slower top-line growth and an increase in expenses.

An outlier was CIBC, which topped Bay Street estimates on a per-share basis on the back of higher revenue.

Shares of RBC and TD were trading about 2% and 3% lower, respectively, in Toronto on…