TD Bank Reports Significant Loss Amid Regulatory Investigations

TORONTO, Aug 22 (Reuters) – TD Bank Group has reported a rare loss after allocating an additional $2.6 billion to cover anticipated fines stemming from U.S. regulatory investigations concerning the bank’s anti-money laundering (AML) controls.

The Canadian lender disclosed on Wednesday that it plans to liquidate a portion of its 12.3% stake in U.S. brokerage Charles Schwab to help mitigate the financial impact of the fine, for which it had already reserved $450 million in the previous quarter.

TD Bank anticipates resolving these regulatory issues by the end of the year and has indicated that regulators may impose non-monetary restrictions as well.

Market analysts see this disclosure as a means to provide greater clarity to investors regarding the eventual costs, timing, and impact of the ongoing investigation—considered a critical issue for the bank.

The potential fine, nearing $3 billion, marks one of the largest penalties ever incurred by a Canadian bank.

An analyst from Scotiabank, Meny Grauman, emphasized that the real concern lies in the possible non-monetary penalties that could emerge as part of the final settlement with U.S. authorities.

During the earnings call, TD CEO Bharat Masrani declined to provide any specifics when questioned about the potential non-monetary penalties.

TD Bank’s shares have experienced a decline of 5% this year, underperforming the TSX banking index, which has risen by 8.6%. As of Thursday morning, the bank’s shares were down about 3.5% in Toronto.

The bank initially made the disclosures about the investigation following the collapse of its $13.4 billion attempt to acquire U.S. lender First Horizon.

The United States has become a pivotal growth market for TD, with significant investments made over the past two decades to acquire smaller regional banks, establishing a network of approximately 1,100 branches, outnumbering its branches in Canada.

Analysts have warned that potential regulatory restrictions in the U.S. could hinder this growth trajectory.

TD Bank is facing allegations that its branches were used by Chinese drug traffickers to launder at least $650 million between 2016 and 2021, with reports of bribery involving employees at one New Jersey branch.

The bank has revealed spending of $500 million to enhance its AML program and risk controls, including hiring key executives and investing in employee training programs.

Despite these initiatives, Masrani indicated that significant work remains to be done, stating that enhancing the U.S. business is a priority for TD.

In the Canadian market, TD’s personal and commercial banking segment recorded a 13% rise in net income, attributed to new account openings and volume growth.

However, earnings in its wealth management and insurance sector remained stable, impacted by severe weather events.

The net loss reported by TD was C$181 million, or 14 Canadian cents per share, in the three months ending July 31, down from a profit of C$2.88 billion, or C$1.53 per share, in the corresponding quarter last year.

On an adjusted basis, TD earned C$2.05 ($1.51) per share, falling short of analysts’ estimates by 2 Canadian cents, according to data from LSEG.

Furthermore, the provision for credit losses increased to C$1.07 billion, compared to C$766 million reported a year ago, illustrating the pressure on the bank’s financial resources as an outcome of regulatory scrutiny.

TD’s U.S. operations, which contribute approximately 25% to the overall profit, reported a 5.6% decline in net income, affected by lower deposit volumes and loan margins.