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The hot US economy boosts TD and CIBC profits, but competition is rising

Toronto Dominion Bank and Canadian Imperial Bank of Commerce can thank the hottest US economy for more profits. But the huge American banking activities are not expected to increase in 2019 as competition is increasing.

TD and CIBC, which released their earnings at the end of the year on Thursday, are at high risk after major acquisitions in the United States. Lately, profit growth from these divisions has been intriguing – especially TD. The bank, which, after years of global financial crisis, experienced an anemic return to its private and commercial bank, it gains US $ 26 billion to US $ 4.2 billion a year from retail banking.

Quit weird, now it's worrying that the US economy has done too well. The recovery is nearly ten years old and inflation and wages are increasing, and the Federal Reserve has raised interest rates eight times over the past two years.

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As the business is rapidly developing, the US banking market has become extremely competitive. "Competition has grown," DBRS Ltd analyst Robert Colangelo said. "Although the US has a very large market, it is limited by the large market share of banks, especially in the commercial sector."

Conference calls on Thursday were reminded of the leaders of both banks. "This, of course, has been competitive," lures for commercial deposits, said Greg Braca, head of the group of US banking groups TD.

"We have reached the limit," said Larry Richman, CIBC's Head of the United States. "As prices are rising, customers who are in excess are willing to pay for it."

Retail and commercial banks make money by attracting low-cost deposits and lending these at the highest rate. Recently, US banks have been able to charge more for each loan, as interest rates have increased.

But the deposit market is becoming increasingly aggressive, which will force banks to pay off their deposits, slowing their lending growth.

Another cloud also accounts for the US economy. In a report issued on Thursday, Standard & Poor's rating agency noted that "the risk of recession in the United States has grown and growth is likely to be slow, even if the US-China tariff dispute does not develop into a trade war."

S & P said that the downturn in the next 12 months is 15% to 20% compared to 10% to 15% in the previous forecast.

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Despite the change in the United States, total revenues in both banks will still be higher next year. The TD is particularly optimistic, and CEO Bharat Masran predicts that total revenue growth in 2019 will be between 7% and 10%.

The CIBC is slightly less bullish, expecting a growth of 5% to 10%. However, the bank remains optimistic about the quality of its loan book. "Although there are still potential winds, as it seems that we are in the later part of the economic cycle, we are still convinced of our strong signing practice and quality of loan portfolio," said Laura Dottori-Attanasio, conference chief of key risk officer.

Investors reacted differently to the reported profit on Thursday. At the end of the trading day, TD shares were relatively unified at $ 73.48, while CIBC shares fell by 3 percent to $ 112.46.

The full fiscal year ending on October 31 stating that net income is $ 11.3 billion, which is almost 8 percent higher than the fiscal 2017, while CIBC's annual gain increased to $ 5.2 billion, which is about 12 percent more than in the previous year.

Earlier this week, TD and CIBC announced their participation in AirAland Aeroplan's loyalty rewards program. TD is a big bet for Aeroplan, which pledges to make initial payments and future spending worth $ 1 billion as a major financial partner. Its agreement with Air Canada will begin in 2020 and end in 2030.

CIBC will be a secondary partner in the new agreement and has agreed to pay up to $ 292 million to participate.

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