TD's U.S. retail bank, once prized, now drags down its stock
Toronto-Dominion Bank’s expensive foray into the U.S. was supposed to supercharge its growth. Instead, it’s become a drag on profitability and badly dented the lender’s reputation.
A busted US$13.4 billion takeover of First Horizon Corp., a money-laundering probe into its U.S. branches and anemic returns across its stateside operation have investors turning sour on Canada’s second-largest bank. Despite some positive momentum in recent weeks, its stock has way underperformed all other major Canadian banks.
Those once-prized U.S. assets, which include more than 10 million customers, accounted for about 23 per cent of net income and 25 per cent of revenue in the most recent quarter. Those operations used to deliver a nice valuation premium for the stock. Now, some investors believe they aren’t delivering on their promise.
“The U.S. is a tougher market to operate in. It’s not as profitable, it’s more competitive. And the relationship with the regulator is less friendly,” Brian Madden, chief investment officer at Toronto-based First Avenue Investment Counsel Inc., said in an interview. While he applauded Toronto-Dominion’s attempt to seek U.S. growth, he now counts his firm as a “frustrated shareholder.”
All eyes will be on Toronto-Dominion’s U.S. results and strategy when it kicks off Canadian bank earnings season on Thursday. The lender faces the threat of billions of dollars in fines and — maybe worse — the prospect that regulators will impose limits on future U.S. growth. A spokesperson declined to comment, citing a quiet period ahead of its earnings release.
“Once again, TD heads into reporting season in a unique position as anti-money laundering issues at the bank overshadow quarterly results,” Scotiabank analyst Meny
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