TD Capitalization: 3Q08

TD has released its Third Quarter 2008 Report and Supplementary Package, so it’s time to recalculate how much room they have to issue new preferred shares – assuming they want to!

Step One is to analyze their Tier 1 Capital, reproducing the prior format:

TD Capital Structure
October, 2007
& July, 2008
  4Q07 3Q08
Total Tier 1 Capital 15,645 17,491
Common Shareholders’ Equity 131.5% 164.3%
Preferred Shares 6.2% 12.4%
Innovative Tier 1 Capital Instruments 11.1% 10.0%
Non-Controlling Interests in Subsidiaries 0.1% 0.1%
Goodwill -49.0% -84.4%
Miscellaneous NA -2.5%
‘Common Shareholders Equity’ includes ‘Common Shares’, ‘Contributed Surplus’, ‘Retained Earnings’ and ‘FX net of Hedging’
‘Miscellaneous’ includes ‘Securitization Allowance’, ‘ALLL/EL shortfall’ and ‘Other’.

Next, the issuance capacity (from Part 3 of the introductory series):

Tier 1 Issuance Capacity
October 2007
& July 2008
  4Q07 3Q08
Equity Capital (A) 12,931 13,563
Non-Equity Tier 1 Limit (B=A/3), 4Q07
(B=0.428*A), 2Q08
4,310 5,805
Innovative Tier 1 Capital (C) 1,740 1,753
Preferred Limit (D=B-C) 2,570 4,052
Preferred Actual (E) 974 2,175
New Issuance Capacity (F=D-E) 1,346 1,877
Items A, C & E are taken from the table
“Regulatory Capital”
of the supplementary information;
Note that Item A includes everything except preferred shares and innovative instruments

Item B is as per OSFI Guidelines; the limit was recently increased.
Items D & F are my calculations

and the all important Risk-Weighted Asset Ratios!

Risk-Weighted Asset Ratios
October 2007
& July 2008
  Note 2007 3Q08
Equity Capital A 12,931 13,563
Risk-Weighted Assets B 152,519 184,674
Equity/RWA C=A/B 8.48% 7.34%
Tier 1 Ratio D 10.3% 9.5%
Capital Ratio E 13.0% 13.4%
Assets to Capital Multiple F 19.7x 17.9x
A is taken from the table “Issuance Capacity”, above
B, D & E are taken from TD’s Supplementary Report
C is my calculation.
F is from Note 9 of the quarterly report

The reported Assets-to-capital multiple reflects that goodwill is deducted from total capital (the denominator) AND FROM TOTAL ASSETS (the numerator); given TD’s huge goodwill, this makes rather a difference! It is noteworthy that they have delevered so much in the past year.

The average credit risk-weight of the assets has increased to 26.6% in 3Q08 from 24.6% in 1Q08, largely due to Corporate lending, which during this period has increased to 26.0% from 24.8% of total exposure and to 46.2% from 40.6% of risk-weighted exposure.

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