TD Q3 2025: U.S. capital markets revenue hits $2B amid $17B runoffs
- Strong U.S. balance sheet restructuring: Management indicated that the ongoing loan runoff will eventually reach an inflection point toward the end of 2026, setting the stage for sustainable growth in the U.S. lending portfolio and improved ROE due to a more focused, accretive asset mix.
- Robust capital markets momentum: The Q&A highlighted that U.S. capital markets activities, particularly in advisory and leveraged finance, are delivering strong revenue performance—with quarterly revenues already hitting $2 billion—demonstrating the platform’s scaling potential and higher future growth.
- Effective risk and compliance improvements: Progress on AML remediation and overall risk management investments has been well received, creating a more resilient operational framework that supports sustainable long-term profitability despite near-term expense implications.
- AML Remediation and Regulatory Uncertainty: The discussion highlighted that while foundational AML remediation actions are expected to complete by the end of 2025, tail items extend into 2026 and 2027, leaving room for regulatory uncertainty and potential delays that could continue to exert pressure on capital and operational efficiency.
- U.S. Balance Sheet Runoff Impact: Management noted that there will be continued loan runoffs totaling approximately $17–18 billion in the near term, which means the U.S. portfolio will face a prolonged contraction through most of 2026. This could pressure margins and impede profitability until an eventual inflection point is reached.
- Tariff-Related Credit Reserves Risk: The Q&A revealed that the bank built approximately $600 million in credit loss reserves based on specific tariff assumptions. If actual tariffs or their economic impacts diverge unfavorably from these assumptions, the bank might need to increase these reserves further, thereby negatively impacting earnings.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Expense Growth | FY 2025 | upper end of 5% to 7% | upper end of 5% to 7% | no change |
U.S. BSA/AML Remediation Costs | FY 2025 | $500 million pretax | $500 million pretax | no change |
Restructuring Charges | Multiple Quarters | $600 million to $700 million pretax over several quarters | $600 million to $700 million pretax over several quarters | no change |
Cost Savings from Restructuring | FY 2025 | $100 million pretax in FY 2025 and annual run‐rate savings of $550 million to $650 million pretax | $100 million pretax in FY 2025 and annual run‐rate savings of $550 million to $650 million pretax | no change |
Net Interest Margin (Canadian Personal and Commercial Banking) | Q4 2025 | no prior guidance | NIM expected to remain relatively stable | no prior guidance |
Net Interest Margin (U.S. Retail) | Q4 2025 | no prior guidance | NIM expected to moderately expand | no prior guidance |
Expense Growth | FY 2026 | no prior guidance | U.S. Retail expense growth expected in the mid-single-digit range | no prior guidance |
Credit Provisions | FY 2026 | no prior guidance | Impaired PCLs expected to gradually rise | no prior guidance |
Balance Sheet Restructuring | FY 2026 | no prior guidance | Expected to complete in FY 2026, with $18 billion of loans running off next year | no prior guidance |
Revenue Growth | Q4 2025 | no prior guidance | Wholesale Banking revenue expected to continue growing with an aim to become a top 10 North American dealer | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
U.S. Balance Sheet Restructuring and Loan Runoffs | Q1 & Q2 call discussions emphasized objectives to comply with asset limits, reduction of borrowings, and planned loan sales (e.g., a $9B portfolio sale in Q1 and additional asset reductions in Q2) | Q3 details show ongoing balance sheet reduction with a specific reduction of $17B, an additional $18B identified for runoff, and expectations to modestly exceed a 10% asset reduction target, with further runoff continuing into 2026 | Advanced progress with increased reduction amounts and an extended timeline, maintaining the same strategic focus |
AML Remediation and Compliance Management | Q1 discussions highlighted building investigative capabilities, system centralization, appointment of a monitor, and controlled expense increases (e.g., $86M in Q1). Q2 focused on enhancing transaction monitoring, implementing AI tools, and similar cost projections with a total guidance of $500M for fiscal 2025 | Q3 emphasizes completed milestones such as deploying machine learning models, launching a new transaction monitoring process, and detailed governance improvements, with a longer remediation timeline extending into 2026/2027 and continued regulatory oversight | Evolving sophistication through increased use of advanced technology and expanded regulatory focus, while maintaining high investment levels in remediation |
Capital Markets Activity and Advisory Revenue Growth | Q2 mentioned a decline in capital markets activity but offset by strong Wholesale Banking performance and record revenue, while Q1 provided record revenue details in Wholesale Banking without explicit details on advisory revenue | Q3 reported a meaningful pickup in CIB activity with diversified contribution from sectors such as biotech, energy and telecom, and increased exposure to U.S. equity capital markets, leading to positive advisory revenue growth | Improved capital markets and advisory performance compared to the prior period, recovering from earlier declines and limited coverage |
Investment Portfolio Repositioning and Business Simplification | Q1 and Q2 outlined ongoing investment portfolio repositioning with sales between $19B–$23B, upfront losses (around $1.1B–$1.3B), expected NII benefits, and strategic reviews to simplify operations and exit niche portfolios such as U.S. point-of-sale financing | Q3 reported completion of the repositioning program with $25B sold for a $1.3B loss, clear NII benefit (around $500M pretax) and detailed restructuring measures including targeted cost savings and business simplification initiatives like a strategic relationship with Fiserv | Consolidation of repositioning efforts with clearer cost savings, completed portfolio adjustments, and enhanced business simplification strategies |
Mortgage Business Performance and Digital Channel Growth | Q1 focused on strong mortgage performance with tripled branch referrals and record $1B funded volumes in Canadian mortgages; Q2 noted a sequential decline in overall Canadian mortgage balances but highlighted strength in proprietary channels and digital initiatives in insurance and investing, with noted AI and digital expansions | Q3 showed strong sequential momentum in U.S. RESL with 1% volume growth and margin expansion, alongside major digital channel innovations such as the launch of TD AI Prism and a virtual AI assistant to enhance client services | Mixed regional mortgage performance with continued emphasis on digital transformation and innovation driving efficiency and customer engagement |
Macroeconomic, Policy, and Tariff-Related Risks | Q1 exhibited a relatively optimistic base case with improved GDP and lower unemployment but included cautions and a $149M overlay for tariff risks; Q2 discussed broader macro uncertainty with reserve builds (over $0.5B) and detailed tariff impact assessments across industries | Q3 emphasized a cautious stance with a significant $600M in reserves detailed for tariff risks, broken down by different sectors, and a focus on evolving credit performance and impairments driven by policy uncertainty | Heightened caution with larger, more detailed reserve measures and a granular approach to assessing tariff and policy risks compared to earlier assessments |
Capital Structure Optimization and Shareholder Value Initiatives | Q1 introduced the initial steps via the Schwab sale with an $8B buyback plan and early restructuring efforts; Q2 detailed an active buyback program (30M shares for $2.5B) and strategic reviews to deploy excess capital while optimizing CET1 ratios | Q3 continued the focus with ongoing share repurchases (16M shares in Q3; total 46M shares repurchased for CAD 4B), and a well-defined restructuring program with expected savings and a continued emphasis on capital optimization and deploying excess capital through buybacks | Sustained focus on optimizing capital structure with accelerated buybacks and refined restructuring strategies that build on earlier initiatives |
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US ROE Improvement
Q: How are US ROE drivers split?
A: Management highlighted that improved operating earnings—delivering about 140bps improvement excluding Schwab—combined with selective portfolio contraction have bolstered US ROE; both numerator uplift and denominator management are at work, with further details to come at Investor Day. -
US Loan Growth
Q: Will US loan balances grow in 2026?
A: They expect continued balance sheet runoff through most of 2026, with an inflection near year‐end driven by strong credit card and home equity growth, even as selective exits persist. -
US Profitability Outlook
Q: What trends drive US expense and profit?
A: Management projects mid–single-digit expense growth alongside stable NIM and strong revenue drivers, ensuring US profitability remains robust despite consistent AML spending. -
Asset Cap Timeline
Q: When could asset cap restrictions ease?
A: While most AML remediation steps will be completed by 2025, full regulatory release of asset cap limitations remains uncertain and will depend on sustained program performance. -
Credit Reserve Breakdown
Q: How is the $600M reserve allocated?
A: The reserve built over three quarters is allocated with roughly $410M for business and government lending and about $119M for consumer exposure, based on tariff-related migration estimates. -
Reserve Release Triggers
Q: What might prompt releasing the reserves?
A: Reserves will be reassessed based on tariff outcomes; if tariffs settle lower or USMCA conditions stabilize beyond assumptions, a release of some of the reserves could occur. -
Capital Markets Integration
Q: How does Cowen boost capital markets?
A: Integrating Cowen has enhanced TD’s advisory and equity capital market capabilities, with quarterly revenue rising from around $1.2B to $2B, reflecting a broadened, diversified platform. -
Loan Runoff Program Scope
Q: Is the runoff program fully defined?
A: Management confirmed that the identified $17B–$18B in runoffs represents the entire planned portfolio reduction program. -
Portfolio Exit Impact
Q: Do exits affect margins or risk?
A: Exiting noncore, non–accretive portfolios is expected to ultimately enhance margins and ROE without materially increasing overall risk, aligning with the bank’s strategic approach. -
AML Indirect Costs
Q: Are there extra AML cost pressures?
A: Beyond the direct spend of about US$500M, there are ongoing investments in broader risk areas such as fraud, cyber, and compliance initiatives, which are being managed carefully. -
Buyback Commitment
Q: Is the $8B buyback still on track?
A: Yes; the bank remains committed to the full $8B share repurchase program, with the buyback pace adjusted according to market conditions. -
RWA & ROE Targets
Q: What are the RWA growth and ROE goals?
A: The strategy focuses on enhancing capital efficiency and balancing risk-weighted assets while targeting ROE improvements near pre-acquisition levels, around 13%, supported by a disciplined RWA management approach. -
Credit Performance Differences
Q: Why do Canadian vs. US credit numbers differ?
A: The differences stem not from a change in underwriting standards but from slightly higher impairments in the US—largely due to CRE challenges—while overall performance remains consistent. -
Canadian Banking Growth
Q: What’s the outlook for Canadian loan and deposit growth?
A: Canadian Personal Banking saw modest RESL growth, underpinned by strong performance in HELOCs and credit cards and favorable deposit mix dynamics, though guidance remains conservatively stable for NIM and NII.
Research analysts covering TORONTO DOMINION BANK.