TD has released its Fourth 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 & October, 2008 |
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| 4Q07 | 4Q08 | |
| Total Tier 1 Capital | 15,645 | 20,679 |
| Common Shareholders’ Equity | 131.5% | 144.2% |
| Preferred Shares | 6.2% | 11.7% |
| Innovative Tier 1 Capital Instruments | 11.1% | 13.4% |
| Non-Controlling Interests in Subsidiaries | 0.1% | 0.1% |
| Goodwill | -49.0% | -73.3% |
| Miscellaneous | NA | +3.9% |
| ‘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 & October 2008 |
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| 4Q07 | 4Q08 | ||
| Equity Capital | (A) | 12,931 | 15,489 |
| Non-Equity Tier 1 Limit | (B=A/3), 4Q07 (B=0.666*A), 4Q08 |
4,310 | 10,326 |
| Innovative Tier 1 Capital | (C) | 1,740 | 2,765 |
| Preferred Limit | (D=B-C) | 2,570 | 7,561 |
| Preferred Actual | (E) | 974 | 2,425 |
| New Issuance Capacity | (F=D-E) | 1,346 | 5,136 |
| 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 & October 2008 |
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| Note | 2007 | 4Q08 | |
| Equity Capital | A | 12,931 | 15,489 |
| Risk-Weighted Assets | B | 152,519 | 211,750 |
| Equity/RWA | C=A/B | 8.48% | 7.31% |
| Tier 1 Ratio | D | 10.3% | 9.8% |
| Capital Ratio | E | 13.0% | 12.0% |
| Assets to Capital Multiple | F | 19.7x | 21.6x |
| 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 OSFI (4Q07) and my calculation (4Q08) Total Capital ($25,348-million), Total Assets ($563,214-million) less Goodwill ($14,842-million) |
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The Assets-to-capital multiple has skyrocketted over the quarter:
| Assets-to-Capital Rough Calculation |
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| Item | 3Q08 | 4Q08 |
| Total Assets | 508,839 | 563,214 |
| Goodwill | 14,317 | 14,842 | Net Assets | 494,522 | 548,372 |
| Total Capital | 24,702 | 25,348 |
| Assets-to-Capital | 20.02x | 21.63x |
It should be noted that my rough calculation above is not strictly accurate: as TD noted in their 3Q08 Shareholder Report:
The assets-to-capital multiple is calculated as total assets plus off-balance sheet credit instruments, such as certain letters of credit and guarantees less investments in associated corporations, goodwill and net intangibles, divided by Total adjusted capital.
… and they arrived at a figure of 17.9x for 4Q08. OSFI does not require the Assets-to-Capital multiple to be disclosed, let alone reconciled to other data.
Whatever the level, it is apparent that the multiple has increased, with assets up approximately $55-billion. “Securities” is pretty much a wash, with a $20-billion decline in “Trading” balanced largely by an increase in “Available for Sale” of $15-billion. “Loans” is a similar wash, with a $10-billion decline in “Residential Mortgages” offset by a $8-billion increase in “Business & Government”. The big balloon is a $42-billion increase in “Derivatives”, financed by a similar $35-billion “Derivatives” on the liability side.
This is probably due to the huge market move of the Canadian Dollar in the third quarter, as individual contracts in a matched book ballooned in value. BMO was also affected by this behaviour. However, TD does not address this asset/liability gross-up, nor does it provide a table showing counterparty strength.