TD Bank Group is preparing for expansion in Canada following the sale of $20 billion worth of stock in The Charles Schwab Corp.
The bank, which is addressing money laundering controls, plans to allocate approximately $8 billion from the sale for stock buybacks, with the remaining funds directed toward growth opportunities identified through a strategic review. The full results of the review are expected in the second half of the year, with a primary focus on the Canadian market.
"We are seeing significant opportunities here within Canada," Raymond Chun, who became CEO of TD in February, said during an analyst call on Tuesday.
The bank also sees potential in its wholesale banking operations, both as an integrated North American dealer and through its international reach, Chun said.
TD’s settlement with US regulators last year, which included a more than US$3 billion penalty and an asset cap on its US retail operations, has led to speculation that the bank will prioritize growth in the Canadian retail sector. The proceeds from the Schwab stock sale leave TD with approximately $12 billion for these efforts.
"We will invest in a targeted and value-driven manner to drive organic growth," said Chun. "As just one example, in Canada, the single largest opportunity for TD is to deepen our relationships with our more than 14 million customers."
Chun said the bank set a 100 million share buyback target to ensure a "meaningful" repurchase of TD shares while maintaining sufficient funds for investments identified in the strategic review.
Following the announcement of the Schwab stock sale, TD disclosed that the shares were sold for US$79.25 each, valuing the stock at approximately 19 times Schwab’s expected earnings per share for the year. TD acquired the Schwab shares through Schwab’s purchase of TD Ameritrade in 2019.
Canaccord Genuity analyst Matthew Lee stated in a note that TD’s reinvestment in its core business would strengthen its position in deposits and support loan growth.
"Overall, we view this transaction favourably, as it represents the first step in TD’s strategic review to reallocate capital," said Lee.
He also noted that the sale does not affect TD’s agreement with Schwab, which allows cash balances in Schwab brokerage accounts to be swept into TD Bank deposit accounts. This program provides clients with federal deposit insurance and gives TD a stable funding source of approximately US$80 billion.
Chun stated that if additional funds remain from the sale, TD may consider further share buybacks.
