TD CEO Masrani brushes aside bearish calls on Canadian banks
The chief executive officer of Toronto-Dominion Bank is shrugging off the bear case against Canada's largest lenders.
Fresh off posting a fiscal second-quarter profit that beat analyst estimates and a sequential decline in loan loss provisions, Bharat Masrani touted his company's lending practices in the face of some recent dire calls against the Big Six.
"We do underwriting right through a cycle, so I feel good," he told BNN Bloomberg in an interview to be broadcast Friday afternoon. "Of course, if there is a major slowdown, we'll have our share of the losses, but I would not expect TD to be a negative outlier."
TD set aside $633 million in provisions for potential credit losses in the three-month period ending Apr. 30, compared to $850 million set aside in the previous quarter. In the interview, Masrani said there was a seasonal effect that caused provisions to rise in the fiscal first quarter, pointing to TD's credit card and auto finance operations in the United States.
Canada's big banks have been the subject of headline-fetching warnings over the last couple of months, as renowned short-seller Steve Eisman and Bay Street analyst Nigel D'Souza argued credit risk is on the rise, potentially leading to sharp losses for shareholders.
Masrani, however, isn't buying into the doom and gloom.
"You know, we've had extraordinarily low loan losses," he said. "The credit environment has been very benign. So you're bound to see at this stage in the cycle some normalization occurring; and we are seeing some losses coming through as you expect in any economy."
Bank bears haven’t been the only ones warning about credit risk. Indeed, the Bank of Canada flagged the proliferation of covenant-lite loans in its latest Financial System Review.
For his part, Masrani made it clear TD won’t chase bad loans.
“Our underwriting standards have been set for many years and they have served us well,” he said. “So if there are some going-out-the-risk-curve deals out there, then TD will not participate in those.”
“And I’m okay with that, because this is a long game and to play with risk is generally not a good idea.”