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TD Bank Group (TSE:TD) has announced a substantial US$2.6 billion provision in its third-quarter results in relation to ongoing U.S. investigations into its anti-money laundering (AML) program. The provision reflects the bank’s anticipation of reaching a global resolution by the end of the year, addressing both civil and criminal inquiries. The bank’s disclosure highlights the gravity of the situation as it faces potential monetary and non-monetary penalties.
Sale of Charles Schwab Shares and Impact on Ownership
TD Bank also revealed the sale of 40.5 million shares in Charles Schwab Corp., generating approximately US$2.6 billion based on the closing price of US$64.57. This sale reduces TD’s ownership in Charles Schwab from 12.3% to 10.1%. The move is seen as part of the bank's broader strategy to bolster its financial position amid the ongoing regulatory scrutiny.
CEO Acknowledges Seriousness of AML Program Deficiencies
TD Bank’s Chief Executive, Bharat Masrani, addressed the situation, acknowledging the serious deficiencies in the bank’s AML program. He emphasized that the bank's remediation efforts are "well underway" and involve the strengthening of its U.S. AML program through the recruitment of globally recognized leaders and experts from regulatory agencies, law enforcement, and government sectors. The bank is also investing heavily in data, technology, training, and process redesign to enhance its compliance measures.
Previous Penalties and Ongoing Remediation Efforts
This latest provision follows a $615 million charge in the second quarter, which impacted TD Bank’s profits, leading to a 22% year-over-year decline in earnings for that period. The initial charge was connected to the bank’s acknowledgment that its AML program was "insufficient to effectively monitor, detect, report, and respond to suspicious activity."
The challenges with TD Bank’s AML program first came to light last August when the bank disclosed that it expected U.S. regulators to impose penalties. In May, the Financial Transactions and Reports Analysis Centre of Canada (Fintrac) fined TD $9.2 million for five violations related to its AML compliance, further compounding the bank’s regulatory troubles.
Fintrac’s penalties stemmed from failures during a review period between March 2022 and March 2023. These included not submitting suspicious transaction reports when required, not properly assessing and documenting money laundering or terrorist financing risks, and failing to implement prescribed measures for high-risk scenarios. TD Bank has since committed to improving its compliance practices and addressing specific findings from Fintrac.
Shareholder Lawsuit and Market Reaction
In June, a proposed class-action lawsuit was filed against TD Bank on behalf of shareholders who purchased shares between August 26, 2021, and June 3, 2024. The lawsuit alleges that TD misrepresented systemic deficiencies in its AML controls, which, once disclosed, led to a significant drop in the bank’s stock price.
Masrani previously addressed shareholders at the bank’s annual general meeting in April, expressing regret that TD’s AML program was not up to standard. The ongoing efforts to resolve these issues are critical for restoring investor confidence and safeguarding the bank’s reputation.
