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Oct 6, 2020

TD downgraded a​mid lower-for-longer rate impact, U.S. election risk

Notable Calls: TD Bank, Lightspeed and Beyond Meat

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Toronto-Dominion Bank was hit by a downgrade from a Bank of America analyst on concerns the bank will face an outsized negative impact from lower-for-longer interest rates compared to its peers. 

In a note to clients, Bank of America analyst Ebrahim Poonawala wrote that in addition to operating in a rock-bottom interest rate environment, TD’s relatively large American exposure leaves it more vulnerable to political risk. 

“The upcoming U.S. presidential elections, which could lead to a change in the corporate tax regime, poses an above-average risk to TD, given that it derives 32 per cent of earnings, including TD Ameritrade, from the U.S.,” he wrote.

Poonawala lowered his rating on TD to an underperform with a 12-month price target of $68 per share, which is nearly seven per cent above where the bank is currently trading at.

The lower-for-longer rate environment and political uncertainty are far from the only significant issues for major Canadian banks as they set aside vast sums of cash to mitigate any issue with loan impairments. 

TD’s adjusted earnings sunk 30 per cent year-over-year in its most recent fiscal quarter, largely due to a rise in provisions for credit losses. Those concerns have weighed on TD’s stock price through 2020, with the bank's shares down nearly 13 per cent year-to-date.