TD Bank risks an earnings hit from U.S. laundering probe, analysts say
With new allegations emerging surrounding U.S. anti-money-laundering investigations into Toronto-Dominion Bank, the lender could face a much higher fine than previously expected as well as a significant hit to its long-term financial performance, according to analysts at National Bank of Canada.
The U.S. Department of Justice is investigating the Canadian bank over its ties to a US$653 million drug-money-laundering case in New York and New Jersey, according to a person familiar with the matter. That’s on top of another case in which one of the bank’s New Jersey branch employees was charged with accepting bribes to facilitate the laundering of drug money.
“The allegations against TD lead us to assess more severe ‘worst-case’ scenarios than what we previously contemplated,” National Bank analysts led by Gabriel Dechaine wrote in a note to clients late Thursday, after the Wall Street Journal first reported Toronto-Dominion’s connection to the drug-money-laundering case.
National Bank’s analysis of the latest revelations “suggests that these issues might not only result in a much larger fine than initially contemplated” — about $2 billion, rather than previous expectations of $500 million to $1 billion — “but they could also have longer-term implications for TD’s financial performance,” Dechaine and his colleagues wrote.
Toronto-Dominion’s future earnings potential could be slashed by more than CAD$1 billion ($730 million) in the report’s worst-case scenario, a figure that includes CAD$250 million of higher ongoing compliance costs per year, limits on earnings growth and five years in the “penalty box” with U.S. authorities.
The bank’s shares slumped 4.7 per cent at 12:10 p.m. in Toronto, after declining 1.7 per cent
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