Bank is selling shares in Wall Street firm to partially fund estimated fines
TD Bank Group has given an update on the US civil and criminal investigations into its U.S. Bank Secrecy Act (BSA)/anti-money laundering (AML) program.
The Canadian big six bank has taken a provision of US$2.6 billion in anticipation of the financial penalties it expects from US regulators, adding to the $450 million it had already set aside for the matter.
With a potential total of around $3 billion in fines, TD has sold 40 million shares in Wall Street discount broker Charles Schwab, cutting its ownership interest to around 10% from its current 12.3%. Although it has agreed not to sell any more of the firm’s shares for at least 45 days, TD says it has no intention to reduce its stake further.
While the provision will cut 35 basis points from TD’s CET1 ratio in the fourth quarter, the share sale will add 54 basis points.
"We recognize the seriousness of our US AML program deficiencies and the work required to meet our obligations and responsibilities is of paramount importance to me, our senior leaders, and our Boards," said Bharat Masrani, TD’s group president and CEO. “Our remediation program is well underway. TD has strengthened its US AML program with the addition of globally recognized leaders and talent from across the industry, including experts from regulatory agencies, law enforcement and government.”
Masrani added that TD is also making important investments in data and technology, training, and process design.
“We are building stronger foundations for our US business, where 30,000 colleagues proudly serve more than 10 million Americans from Maine to Florida," he said. “TD continues to work constructively with our regulators and law enforcement towards resolution of our U.S. AML matters and looks forward to bringing additional clarity to our shareholders, clients and other stakeholders.”
Non-monetary penalties
TD is expecting a global resolution to the US investigations by the end of the 2024 calendar year and while the fines could be less than the top end of estimates by analysts, there will likely be non-monetary penalties and restrictions.
“While the market now has certainty surrounding the amount of the charge, this is offset by the fact that it is larger than expectations and the impact this has on capital,” said Jefferies analyst John Aiken in client note.
Desjardins Capital Markets analyst Doug Young also considered the matter in a client note and said that it’s hard to tell at this time what the restrictions could be. “And we highly doubt that management will comment on this right now,” he added.
