Toronto Dominion Bank's (TD Bank) common stock price reached our target on 01 May 2009. The increase in price reflects a broad-based improvement in financial markets and a revival of confidence in the Canadian banking system. However, at current levels, we believe that the company's fundamental upside potential has been exhausted. Therefore, we downgrade the common stock from a BUY to a HOLD. We will reassess our common stock rating in our next update report....

The IMF's April 2009 World Economic Outlook report forecasts Canadian GDP to contract by 2.5% in 2009, before recovering to post 1.2% growth in 2010. Considering this weak domestic economic outlook, as well as an adverse outlook for exports (the US, which has been hard hit by the downturn, is Canada's main export market), we expect demand for credit to fall throughout FY 2009, weighing negatively on NII. However, this should be partly offset by the Bank…

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Robust growth in Net Interest Income (NII) lifted Toronto Dominion Bank’s (TD Bank) total revenues in 4Q 08, although this was offset by a decline in non-interest income. NII growth was driven by expansion in the bank’s loan portfolio as well as an increase in the Net Interest Spread (NIS). However, we expect the Net Interest Margin (NIM) to remain under pressure over our investment horizon as a result of higher funding costs and…