TD Bank to take $450 million provision in relation to U.S. probe

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Toronto-Dominion Bank is booking an initial US$450-million provision in connection with an ongoing probe into violations of U.S. banking regulations, including anti-money laundering controls, the bank said this week.

“This provision does not reflect the final aggregate amount of potential monetary penalties or any non-monetary penalties, which are unknown and not reliably estimable at this time,” TD said in a press release Tuesday, noting that it expects additional monetary penalties to be levied.

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The bank said the specific provision was tied to discussions with one of three U.S. regulators with which it is engaged on the matter. It is also in ongoing talks with the U.S. Department of Justice.

“TD’s AML program was insufficient to effectively monitor, detect, report, and respond to suspicious activity,” TD acknowledged in the release. “Work has been underway to remedy these deficiencies.”

One Bay Street analyst said the initial amount disclosed suggests the market may be underestimating the penalties TD will pay in connection with the regulatory probes into its anti-money-laundering controls.

“We believe investors expect TD to settle its … issues for somewhere in the US$500 million (to) US$1 billion range,” National Bank analyst Gabriel Dechaine wrote in a note to clients Tuesday night, adding that the initial amount relates to the investigation of just one of three regulators looking into by the bank’s practices. “Given the size of the initial penalty we could easily see the final cost hit the upper end of that range, if not exceed it.”

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The larger the fines against TD get, the bigger the impact it will have on the bank’s closely watched CET1 capital ratio, the analyst said.

In his note, Dechaine said the Department of Justice is among the regulators still looking into TD’s operations in the U.S., adding that the justice agency imposed the largest penalty of three regulators that probed HSBC over similar issues nearly a decade ago.

He also pointed out that financial penalties aren’t the only tool available to regulators, which can impose consent orders.

“These orders can result in limits on asset growth and could also add to a bank’s cost burden for several years,” Dechaine wrote.

At TD’s annual general meeting this month, the bank’s chief executive Bharat Masrani acknowledged that the investigation has weighed on its share price.

Last May TD’s US$13.4 billion deal to buy Memphis-based First Horizon Corp. was called off because the banks did not have clarity on if and when they would get the necessary regulatory approvals. In August, TD disclosed that it expected U.S. regulators to impose penalties.

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Shareholders pressed Masrani earlier this month on the share price performance of the bank, which has sunk over 27 per cent from the high reached in February 2022.

Masrani took a $1-million cut to his compensation last year, in part to reflect the cancelled First Horizon transaction and the regulatory probes. His total compensation for 2023 was $13.4 million, down from $15.1 million a year earlier.

Additional reporting by The Canadian Press

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