TD Bank Boosts Capital Markets, Buybacks Amid Forecasted Declines in Revenue & ROE

TD Bank Bay Positioning Capital Markets Activity: The bank has clearly made a concerted effort to build out its capital markets platform—acquiring senior bankers in both equity and debt product lines, covering sectors such as natural resources, technology, infrastructure, and financial institutions. While publicly-available details on these hires (name identities, compensation, origination slate, etc.) are limited, the broader move fits into TD’s wholesale banking unit scaling up its advisory and underwriting capacity. This aligns with recent quarterly results showing strong performance in fee income and fixed income trading revenue under the Wholesale Banking segment. The intent appears to balance its predominantly interest-rate-driven retail earnings mix with more stable, fee-based activities that are less sensitive to rate cycles.

Capital Structure Maneuvering: TD is actively reshaping its liabilities and equity base. The redemption of $1.25 billion of 4.859% NVCC subordinated notes (due 2031) is a meaningful deleveraging step, reducing hybrid capital obligations and tightening credit spreads exposure. At the same time, the bank has used proceeds from the sale of its 10.1% stake in Charles Schwab to fuel capital returns—including an $8 billion share repurchase—while maintaining robust capital ratios (CET1 ≈14.7%). These moves suggest sufficient capital buffer to execute buybacks without breaching regulatory minima.

Financial Forecasts and Risk Profile: Despite the strategic moves toward higher margin fee income and capital return, TD’s earnings outlook remains weak. Analysts project a compound annual earnings decline of ~5.3% over the next three years, and revenue is expected to fall ~2.4% annually. Expected ROE is dropping toward 12.5%, roughly in line with or below Canadian Big-5 banks’ long-run thresholds. Key risks include whether recent hires can bring in mandates (client pipeline), regulatory and compliance costs (especially following the AML settlements), and macro headwinds such as declining rate spreads, recession risk in the U.S., and exposure to industries like natural resources and tech which face volatile cycles.

Strategic Implications: For investors and competing banks, TD’s expansion in capital markets shows a move to diversify away from purely asset yield-driven banking. If executed well, this could offer higher margin streams, cross-selling opportunities, and smoother revenues in downturns. For capital allocation, the massive buyback programs suggest management is confident in its current earnings power and capital strength. However, balancing execution with risk—especially around integrating senior hires, maintaining regulatory compliance, and managing credit losses in consumer and commercial segments—will likely be central to whether this shift improves long-term shareholder value.

Open Questions to Monitor:

• Are there public disclosures (in upcoming MD&A or earnings calls) of the specific senior bankers hired, their expected coverage sectors, and expected contribution to deal pipeline? Are there first-mandate wins already?
• How will declining forecasts for earnings and revenue reconcile with expectations of buybacks and capital return? Will shrinking top-line demand pressure margins in wholesale banking?
• Can TD sustain CET1 and other capital ratios above regulatory requirements after continued buybacks and potential balance sheet risks (e.g. credit losses, economic downturn)?
• What will be the impact of regulatory oversight—especially AML control costs and possible U.S. growth caps—on return on equity and operating leverage?