TD Bank posts a US$181m loss as US fines and rising insurance claims weigh on quarterly results
Toronto-Dominion Bank, Canada’s second-largest lender, reported its first quarterly loss since 2003 due to a US$2.6bn provision for fines tied to ongoing US money-laundering investigations.
The bank recorded a $181m loss as the anticipated costs from the long-running probe into its compliance issues surged. Even without the provision, earnings fell short of expectations, impacted by a rise in insurance claims due to extreme weather and wildfires.
The bank's shares dropped as much as 4.8 percent on Thursday before partially recovering and were down 2.7 percent to $79.09 at 12:43 pm in Toronto.
Year-to-date, TD’s shares have declined by 7.6 percent, contrasting with an 8.3 percent increase in the S&P/TSX Composite Financials Index.
This quarterly report follows TD's announcement that it expects to pay over US$3bn in penalties related to its US compliance lapses, with a “global resolution” anticipated by the end of the year. To fund the latest provision, the bank sold a portion of its stake in Charles Schwab Corp.
The future of CEO Bharat Masrani is uncertain, with National Bank of Canada analyst Gabriel Dechaine suggesting that this announcement “clears the way for CEO succession.”
TD faces allegations of failing to detect money laundering and other financial crimes in several US branches, with cases filed in New York, New Jersey, and Florida. The bank is under investigation by the US Department of Justice, financial regulators, and the US Treasury Department.
This latest provision follows a previous US$450m charge announced in April.
The new provision sheds light on the timeline and potential fines, which are at the high end of analysts’ expectations. However, the type and duration of non-monetary restrictions TD might face, particularly those affecting its US business growth, remain unclear.
Masrani expressed cautious optimism during a Thursday conference call, stating, “While we are not through the tunnel yet, we can see the light at the end of the journey.”
Nonetheless, the question of Masrani’s future at the bank remains unresolved, with Dechaine noting that the financial clarity provided could pave the way for a potential successor.
TD's US$13.4bn deal to acquire First Horizon Corp., a regional bank in the southeastern US, collapsed in May 2023, with the bank citing regulatory uncertainties. Shortly after, the bank acknowledged receiving inquiries from regulators and law enforcement.
Despite the challenges, Masrani emphasized the importance of the bank’s US division for Toronto-Dominion’s future.
In the fiscal third quarter, TD earned $2.05 per share on an adjusted basis, missing the $2.07 average analyst estimate.
The bank incurred $110m in restructuring charges during the quarter, part of its efforts to reduce job and real estate costs to counter increased spending on compliance controls. The restructuring program is now complete.
The bank’s wealth-management and insurance unit faced a 20 percent rise in insurance claims due to wildfires in Alberta and severe weather in the Toronto area, resulting in net income of $430m, down from $621m in the previous quarter.
However, TD reported record revenue in its Canadian personal and commercial banking unit, with profit growing 13 percent from the previous year to $1.9bn. The wealth-management business also achieved record revenue, though higher insurance claims impacted overall profit.
