Toronto-Dominion Bank (TD) announced the suspension of its medium-term financial targets as it undergoes a strategic review in the wake of a historic settlement with US authorities over money-laundering violations.
A Bloomberg report highlighted that the decision comes as the bank prepares for a shift in leadership, with incoming CEO Raymond Chun tasked with guiding the institution past the fallout from the settlement.
In a statement released Thursday, TD revealed that it is reassessing its approach to organic growth, productivity, efficiency, and capital allocation. Bloomberg noted that as a result, the bank suspended targets for earnings growth, return on equity, and operating leverage.
TD’s legal troubles stemmed from investigations into its failure to prevent money laundering by criminal organizations, including drug cartels. In October, the bank reached a settlement with US regulators, pleading guilty to the charges and agreeing to pay nearly $3.1 billion in fines and penalties. Additionally, TD will face restrictions on its US assets as part of the agreement.
As of 10:01 am in Toronto, TD’s shares fell 5.9% to C$75, marking a 12% decline this year. The financial difficulties have also been compounded by a weaker-than-expected fourth-quarter earnings report. TD posted adjusted earnings of C$1.72 per share, missing the analyst estimate of C$1.83. The bank’s net income from its US retail division dropped by 32%, totalling C$863 million, which fell short of analysts’ expectations.
Analyst John Aiken of Jefferies Financial Group noted that TD’s fourth-quarter results were “irrelevant to its outlook,” highlighting the bank’s challenges in generating earnings growth for fiscal 2025. “Investors will need to be patient for a catalyst to release the pent-up value in TD,” Aiken said in a note to clients.
Bloomberg reported that the settlement and subsequent restructuring come at a time when TD is also reducing its US assets by 10% to comply with the asset cap imposed by US regulators.
The US division’s expenses were also impacted by charges related to the money-laundering case. In its capital-markets division, TD’s adjusted net income of C$299 million was lower than expected but showed a 68% increase from the previous year, driven by lower expenses related to the integration of Cowen Inc., a US investment bank TD acquired.
TD’s provisions for credit losses in the quarter were C$1.11 billion, in line with analysts’ forecasts. This was a more moderate result compared to Bank of Montreal’s provisions of C$1.52 billion, which had significantly exceeded expectations.
The resolutions also come shortly before CEO Bharat Masrani’s planned retirement in April 2025, with Chun, who has been with TD for three decades, slated to take over. RBC Capital Markets analyst Darko Mihelic noted that Chun will need to address both the strategic challenges facing the bank and restore employee morale, which has been dented by the recent scandals.
With the US asset cap remaining in place indefinitely, TD’s stock is trading at a significant valuation discount compared to its peers, a trend that Mihelic predicts will continue until the situation improves.
In addition to its legal woes, TD also faced challenges in its insurance business. The bank pre-announced a C$388 million increase in catastrophe-loss claims due to extreme weather and wildfires, adding further strain to its financial performance.
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