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A hot US economy boosts TD and CIBC profits, but competition is growing.

The Bank of Toronto-Dominion and the Canadian Imperial Bank of Commerce can thank the hot US economy for higher profits. But it is expected that in 2019 a significant increase in the volume of banking operations in the United States is expected due to increasing competition.

TD and CIBC, which both released revenues at the end of the year on Thursday, are heavily impacted by the United States after major acquisitions. Recently, profit growth from these units has been encouraging – especially for TD. The bank, which survived the years of untimely profitability in its personal and commercial US bank after the global financial crisis, saw that its annual profit from US retail banking services grew by 26% to 4.2 billion dollars. USA.

Oddly enough, the concern now is that the US economy is working too well. Recovery almost ten years ago, while inflation and wages are rising, prompting the Federal Reserve to raise interest rates eight times in the past two years.

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As the business flourishes, the US banking market has become extremely competitive. “Competition has increased,” said DBRS Ltd. analyst. Robert Colandzhelo. "Despite the fact that the USA is a very large market, it is limited depending on what market share they can take on, especially on the commercial side."

The leaders of both banks repeated this sentiment at the conferences on Thursday. "It certainly was competitive," when they lured commercial deposits, said Greg Braque, head of the US bank group for TD.

“We have reached the threshold,” said Larry Richman, head of the US region for the CIBC. "As interest rates increase, customers who have excess cash want to get paid for it."

Retail and commercial banks earn money by attracting low-cost deposits and providing this money with higher rates. Recently, US banks were able to charge more for a loan as interest rates go up.

But the market for attracting deposits is also becoming more aggressive, which makes banks pay for deposits, slowing the growth of their margins.

A few more clouds also form over the US economy. In a report published on Thursday, the rating agency Standard & Poor & # 39; s noted that "the risk of recession for the United States has increased and growth is likely to be slow, even if the dispute over the United States in China does not turn into a trade war."

S & P said it’s likely to fall in the next 12 months from 15 to 20 percent, compared with 10 percent to 15 percent in its previous forecast.

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Despite shifts in the United States, total revenue in both banks is still expected next year. TD is particularly optimistic, and Chief Executive Officer Bharat Masran predicts a total profit growth of 7% to 10% in the 2019 fiscal year.

CIBC is a little less bullish, expecting expansion from 5 to 10 percent. However, the bank is still optimistic about the quality of its credit book. “Although there are still potential headwinds, as it seems that we are entering the later part of the economic cycle, we are still confident in our strong underwriting practice and the quality of our loan portfolios,” said Laura Dottori, Chief Risk Officer. Attanasio in a conference call.

Investors have repeatedly responded to profits announced on Thursday. TD shares were relatively flat by the end of the trading day, closing at $ 73.48, while CIBC shares fell 3% to $ 112.46.

For the entire fiscal year ended Oct. 31, TD reported a net profit of $ 11.3 billion. The United States, which is almost 8 percent higher than in fiscal 2017, while the CIBC annual profit rose to $ 5.2 billion. United States, which is 12 percent more compared with the previous year.

Earlier this week, TD and CIBC announced details of their participation in the acquisition of Air Canada's Aeroplan loyalty program. TD is betting on Aeropllan, making advance payments of $ 1 billion and future expenses as a leading financial partner. His contract with Air Canada will begin in 2020 and will last until 2030.

CIBC will become a secondary partner in the new arrangement and agreed to pay a total of $ 292 million for participation.

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