Yahoo Finance TD could face penalties in probe of anti-money laundering compliance in U.S.
Toronto-Dominion Bank, coming off less-than-stellar third-quarter financial results that fell short of analyst expectations, said it is facing a probe over anti-money-laundering (AML) compliance in the United States.
In notes to its earnings report, TD said it has been responding to both formal and informal inquiries from regulators and law enforcement concerning its Bank Secrecy Act and AML compliance program and that the probes include an investigation by the U.S. Department of Justice.
The disclosure under legal and regulatory matters said Canada’s second-largest bank is co-operating with U.S. authorities and “anticipates monetary and/or non-monetary penalties to be imposed” even though the outcome of the investigations is unknown at this time.
In May, TD called off its planned US$13.4-billion acquisition of Memphis-based First Horizon Corp., saying the decision was mutual because there was no clarity on when regulatory approval would be reached. Subsequent media reports suggested regulators were concerned about the Canadian bank’s AML compliance in the U.S.
TD did not mention the cancelled acquisition in its Aug. 24 earnings report. The bank said the regulatory and law enforcement inquiries concern its Bank Secrecy Act/AML compliance program “both generally and in connection with specific clients, counterparties or incidents in the U.S.”
In addition to cooperating with the authorities, TD said it is “pursuing efforts to enhance its … compliance program.”
TD has had a significant presence in the U.S. for a couple of decades. In the mid-2000s, it acquired New England-based Banknorth Group Inc. and Hudson United Bancorp, which took it into New York and New Jersey. The bank’s scale in the U.S. was doubled in 2008 when it bought New Jersey-based Commerce Bancorp Inc., which was combined with Banknorth to form what is now known as TD Bank N.A.
The failure to consummate the First Horizon acquisition earlier this year led some analysts to suggest it would be difficult for TD to continue its U.S. expansion. The deal fell through at a time when U.S. regional banks were under pressure following the failure of Silicon Valley Bank and Signature Bank.
Flush with cash following the cancelled transaction, TD tripled its share-buyback program when it released third-quarter earnings on Aug. 24. The bank will now repurchase for cancellation up to 90 million common shares.
In a note to clients, National Bank Financial analyst Gabriel Dechaine said the potential for regulatory fines along with weak margins in the U.S. business offset the buyback news.
“Potential fallout (of the regulatory and law enforcement probes) … could result in higher capital costs and higher investment spending in order to address this issue,” the analyst said in a note, adding that the third-quarter results “fell short on several fronts.”
TD reported $1.99 in cash earnings per share, below the consensus analyst estimate of $2.03, for the period that ended July 31.
Dechaine said there is potential for TD’s Canadian net interest margins to follow the decline in the U.S. due to deposit pricing and asset origination mix.
TD’s latest figures also shone a light on how increasing interest rates are translating into longer amortization periods on residential mortgages in Canada.
A year ago, just one per cent of residential mortgages in TD’s Canadian book had a remaining amortization period of 30 years or longer. That rose to 28.9 per cent in October and declined slightly to 25.7 per cent in the latest report.
• Email: bshecter@nationalpost.com
