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 |
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| 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’. |
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Next, the issuance capacity (from Part 3 of the introductory series):
| TD Tier 1 Issuance Capacity October 2007 & July 2008 |
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| 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 |
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and the all important Risk-Weighted Asset Ratios!
| TD Risk-Weighted Asset Ratios October 2007 & July 2008 |
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| 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 |
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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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