Province
TORONTO — Executives at Toronto-Dominion Bank have accepted plaudits for avoiding the sort of subprime-related write-downs that have beset rival banks.
But if pride comes before a fall, TD’s senior management will likely be growing more wary about the bank’s exposure to other areas of the faltering U.S. economy, and in particular the deteriorating commercial real-estate sector.
Defaults on residential mortgages have grabbed most of the headlines out of the U.S. financial sector, but higher defaults on commercial real-estate loans look more likely too.
Anxiety has been heightened as the cost of purchasing protection against U.S. commercial-mortgage defaults has spiked recently.
The jump in the cost of protection — it has more than quadrupled since September — is “truly stunning” and comes on the back of other economic indicators that show subprime woes have seeped into the broader U.S. economy, said Blackmont Capital analyst Brad Smith. TD, through its Portland, Maine-based Banknorth franchise, has more at risk from the downturn in the U.S. than its Canadian peers when it comes to commercial real-estate loans, Smith notes.
The bank’s exposure to the sector will be about $12.3 billion, once it closes its recently announced $8.5-billion US acquisition of New Jersey-based Commerce Bancorp, according to figures from Blackmont.
Among TD’s Canadian rivals, Canadian Imperial Bank of Commerce has the next biggest exposure, with $4 billion of commercial real-estate loans on the line, followed by Royal Bank of Canada with $3.8 billion and Bank of Montreal with $2.9 billion.
A “unique risk” for TD is that a sizeable proportion of its portfolio of commercial real-estate loans was underwritten by U.S. banks that TD has acquired in recent years, rather than by TD’s own bankers, Smith said.
© The Vancouver Province 2008