S&P revises TD Bank's outlook to 'negative' on risk management weakness

By Niket Nishant and Nivedita Balu

(Reuters) -TD Bank on Wednesday received a rating outlook revision from S&P Global to "negative," the second downgrade from a rating agency for a lender facing probes into anti-money laundering practices in the U.S.

S&P Global said it revised the rating outlook to "negative" from "stable," citing weakness in risk management and controls.

The move comes a day after a similar action by Fitch Ratings, which cited risks to the bank's business from the anti-money laundering probes.

TD faces a U.S. regulatory probe on allegations that Chinese drug traffickers used the bank to launder at least $650 million from 2016 through 2021 and that an employee took a bribe to facilitate laundering of drug money.

The bank has said it was setting aside $450 million to cover potential fines for one of three regulatory probes and expects more monetary penalties. The lender has also been fined C$10 million by the Canadian financial intelligence unit for administrative violations.

"Our outlook revision reflects that the extent and implications of the bank's risk management and control issues are still uncertain," S&P Global ratings said in a press release.

TD bank has said it is making investments of about C$500 million to overhaul its compliance program and has also terminated employees.

"Nevertheless, we think it will take time to overhaul the AML infrastructure to regulatory satisfaction," the rating agency said.

The negative outlook reflects a one-in-three chance S&P could lower the ratings on TD Bank in the next two years, it said. The agency, however, reiterated its "AA-" rating on the bank's debt.

So far this year, TD's shares has slid over 10%, the biggest declinerr among Canada's six biggest banks.

At its conference call in May, CEO Bharat Masrani said there were serious instances where the bank did not effectively monitor detect, report and respond to suspicious activity. "This is unacceptable," he said.

(Reporting by Niket Nishant in Bengaluru and Nivedita Balu in Toronto; Editing by Alan Barona and David Gregorio)