As succession questions swirl at Canada's TD, CEO says plans are in place

By Nivedita Balu

TORONTO (Reuters) - From a U.S. money-laundering probe and the cancelled acquisition of First Horizon Corp in May, Canada's TD Bank has faced turbulence that is making questions about who will succeed CEO Bharat Masrani top of mind for many investors.

The CEO told analysts on Thursday in a call, after TD reported its first quarterly profit beat in a year due to strong domestic business, that he is focused on the job.

"I'm focused. Every day I wake up, I'm focused on strengthening the bank," Masrani told analysts.

"As you would expect, we have very detailed and robust succession plans across the bank."

At 67, he is the same age as his predecessor, Ed Clark, when he retired. Jefferies analyst John Aiken said Masrani could soon "decide to call it a day and walk into the sunset for a well deserved retirement."

TD did not comment beyond Masrani's remarks on Thursday.

The departure of Michael Rhodes in December, the Canadian retail operations head who was long seen as a potential CEO candidate, has left investors with new questions about Masrani's eventual replacement.

Rhodes was replaced by Ray Chun, who joined TD in 1992 and has held top roles across its wealth management and insurance units.

Jefferies' Aiken said that a lack of ready replacements for the CEO can create significant concern in the market, as its choices are not as wide as they once were due to notable turnover in its executive ranks in recent years.

"It doesn't sound like he's in a hurry to leave... (But) I think the board will probably want to accelerate the process," said Brian Madden, chief investment officer at First Avenue Investment Counsel.

"I would say it's more likely someone internal. It's better for continuity."

Analysts and shareholders expect Masrani to stay until the U.S. money-laundering probe is done, which some speculate will culminate in a hefty fine and tighter transaction controls at the bank. TD shareholder Anthony Visano of Kingwest & Co said he hopes it will finish by the end of the year.

Visano endorsed the idea of the lender developing an internal CEO candidate, saying there isn't enough time to groom an outside executive.

Following the traditional pattern at Canadian banks to promote from within among long-serving executives, Masrani rose to CEO after building the bank's U.S. franchise over seven years as U.S. head.

While Masrani has been CEO, TD has hit a C$146 billion ($106 billion) market capitalization with 64% share price growth, on par with the broader Toronto Composite Index and in the middle of peers like BMO and Royal Bank of Canada.

COULD NEXT CEO COME FROM OUTSIDE TD?

Three of Canada's bank CEOs, at RBC, TD and CIBC, mark 10 years in the job this year. At TD, it may be premature to rule out a new CEO coming from outside the bank as analysts do not see a deep pool of candidates among its executives.

But the TD board will probably see last year's move by Bank of Nova Scotia as a cautionary tale and avoid going outside the industry.

Scotiabank named board member Scott Thomson, former CEO of Caterpillar dealer Finning, as its chief last year. The appointment rattled investors.

($1 = 1.3577 Canadian dollars)

(Reporting by Nivedita Balu in Toronto; Editing by Denny Thomas)