TD is cooperating with a U.S. Justice Department investigation into the bank’s compliance with anti-money laundering measures, the Canadian lender said Thursday.
The disclosure, in the bank’s quarterly earnings report, lends credence to reports in May that regulatory scrutiny over TD’s handling of suspicious customer transactions tanked the bank’s planned $13.4 billion acquisition of Memphis, Tennessee-based First Horizon.
TD “anticipates monetary and/or non-monetary penalties to be imposed” as a result of the AML matter, the bank said Thursday, adding it is “pursuing efforts to enhance” its Bank Secrecy Act compliance program.
Analysts, on a conference call Thursday, pushed TD executives to give further details such as a cost estimate or time frame to accompany any penalties — or whether the DOJ matter or other regulatory inquiries would prevent the bank from acquiring U.S.-based firms.
TD CEO Bharat Masrani, however, stuck to the script.
“We are working hard to enhance our programs,” Masrani said Thursday, according to The Globe and Mail, adding that he could not comment on regulatory matters but that the bank would update shareholders when more concrete figures arise.
TD is "ensuring that we've got a strong control platform to be able to operate," Leo Salom, the bank’s U.S. CEO, said, according to American Banker.
The bank disclosed Thursday that it recognized, during the May-to-July quarter, a previously announced $225 million payment to First Horizon over the termination of the proposed merger.
TD took on an added $126 million loss in June when the First Horizon preferred stock it bought as part of the transaction converted into common shares, the bank said Thursday. That’s on top of $147 million in losses TD recognized last quarter in a valuation adjustment.
The losses may be piling up, but TD can “easily afford to pay” any fines stemming from regulatory and law enforcement probes, Gabriel Dechaine, an analyst at the National Bank of Canada, said Thursday in a note seen by Bloomberg.
The bank disclosed in May it had roughly $18 billion in excess capital after the First Horizon deal collapsed.
Dechaine, however, said the bigger consequence for TD may be a “reputational hit, along with potentially higher compliance costs and capital requirements — via higher operational [risk-weighted assets].”
Under a joint proposal last month by the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency, banks with between $250 billion and $1 trillion in assets — TD’s U.S. operation falls in that range — will face a roughly 10% uptick in capital requirements.
While it’s standard for U.S. regulators to flex some oversight on a Canadian bank with a sizable stateside footprint, it’s less typical for a Canadian bank to be the subject of a federal investigation by a U.S. authority.
The Justice Department declined to comment Thursday to Bloomberg and did not immediately respond to a request for comment from Reuters, in regard to TD.
Total revenue at TD jumped 17%, compared with the May-to-July quarter last year, according to American Banker. That figure included 10% growth In the bank's U.S. retail banking business.
However, noninterest expenses in U.S. retail grew at a faster pace — 13%. And the bank’s overall noninterest expenses spiked 24% over the quarter, compared with the same period last year.
Salom noted investments to "strengthen the foundation of our U.S. franchise” as a contributing factor.
"Governance and control is one of our important elements and pillars of our overall investment process," Salom said.
TD overall saw a 12% dip in profit for the quarter.
After the First Horizon deal crumbled, TD executives outlined a plan to grow organically throughout the Southeast U.S. — targeting markets such as South Florida, Atlanta and North Carolina; doubling its hiring of wealth advisers; and opening 150 new U.S. branches by 2027.