CRIMINAL CAPITALI$M
TD hopes to soon reach 'global Resolution' of drug-money probes
, Bloomberg News
Toronto-Dominion Bank is hoping it can soon work out a “global resolution” to a series of regulatory and law-enforcement probes it faces in the U.S. over allegations that the lender was used for the laundering of drug money.
Chief Executive Officer Bharat Masrani addressed employees of the bank in a series of communications on Monday and in a video town-hall meeting with about 1,800 top leaders, during which he warned that “this is going to get tougher before it gets better.”
“I’m hoping that we can resolve this as soon as possible. We’re looking at a global resolution,” he said, according to a transcript of the meeting seen by Bloomberg News. “But in the meantime, it is critical that we hold our heads high.”
Masrani was in Hollywood, Florida, on Monday for a meeting of the bank’s U.S. regional leaders on the topic of anti-money-laundering and also sent an all-employee email to staff late in the day, touching on many of the same issues he raised in the video meeting.
Toronto-Dominion is facing probes by three different regulators as well as the U.S. Department of Justice, which is investigating the bank over its ties to a US$653 million drug-money-laundering case in New York, New Jersey and Pennsylvania, a person familiar with the matter told Bloomberg last week. That probe is focused on how Chinese crime groups used Toronto-Dominion and other banks to hide money from U.S. fentanyl sales, the Wall Street Journal reported last week.
That’s in addition to another case in which an employee at one of the bank’s New Jersey branches was charged with accepting bribes to facilitate the laundering of drug money.
“We’ve been working with the U.S. Department of Justice investigators for some time now,” Masrani told employees. “I should say our system did pick up a lot of this activity but not enough and we were just too slow.”
Apprehending Criminals
Information the bank has provided to law enforcement “has helped, not only apprehend these criminals, but to actually get them in front of a court and be prosecuted,” he said, adding that the bank has produced tens of thousands of documents, video surveillance and forensic analysis to assist authorities.
Toronto-Dominion also conducted an internal investigation and dismissed individuals for code-of-conduct violations, Masrani said.
“Bharat continues to be focused on serving our customers, running the bank, putting in place the actions we’ve taken to address these issues and has spent the last week speaking with senior leaders and colleagues across the bank about the matter and the path forward,” Toronto-Dominion spokesperson Elizabeth Goldenshtein said in an emailed statement.
While Masrani didn’t specify who has been let go, there has been a series of leadership changes at its U.S. business. The bank appointed Leo Salom to run the division in 2022, replacing former U.S. CEO Greg Braca.
Matthew Boss was recently given an expanded mandate to run Toronto-Dominion’s entire consumer-banking business in the U.S., after previously handling consumer products, including credit cards and residential lending. With the larger role, Boss took over from Ernie Diaz, who was head of U.S. consumer distribution, wealth and auto finance and left the bank at the end of April.
On the compliance side, Toronto-Dominion recruited Chicago-based Herbert Mazariegos away from Bank of Montreal to become chief global anti-money-laundering officer in November. He replaced Mike Bowman.
The Toronto-based lender has invested more than $500 million (US$365 million) to upgrade its overall anti-money-laundering program, Masrani said Monday, adding that it plans to do more.
The bank has overhauled its internal processes, deployed new technologies and put enhanced training in place, he said.
“I think all our colleagues in the U.S. have already experienced that,” Masrani said. “And of course this is going to be rolled out around the world.”
Some analysts have said the bank could face total fines in the range of US$2 billion and that its future growth in the U.S. could also be constrained.
Toronto-Dominion’s shares fell sharply in the wake of the Journal’s report last week, costing the bank about $10 billion in market capitalization. Its stock has made a modest recovery so far this week, and was up 1.1 per cent to $75.95 at 2:51 p.m.
Regulator response to TD drug money laundering allegations could lead to a cap on growth: analyst
, BNN Bloomberg
One Canadian bank analyst says there could be $1 billion downside to Toronto Dominion Bank’s earning potential after a report that the investigation it faces in the U.S. is tied to laundering illicit fentanyl profits.
The U.S. Department of Justice launched an investigation after discovering evidence of a drug-money-laundering operation in New York and New Jersey, the Wall Street Journal reported on May 2, citing court documents and people familiar with the case.
The Journal said the U.S. Justice Department investigation is focused on how Chinese drug traffickers allegedly used TD to launder at least US$653 million, and bribed TD employees to do so.
Gabriel Dechaine, a Canadian banks analyst with National Bank Financial says the aftermath of the probe could lead to rippling implications for TD’s revenue growth.
Dechaine says a major element in the regulatory response to the scandal are non-monetary penalties and wider restrictions enforced on the bank.
“Those are some things that could still come into play,” he said during an interview with BNN Bloomberg on Monday. “That could be a persistent push to keep investing into compliance costs or compliance personnel and systems. So the next two years they’re going to spend around $500 million a year after tax. That could go on or the numbers could get bigger. Or it could last several more years beyond that.”
Regulators, he said, could essentially tell TD, “until your problems are fixed and we’re satisfied with your new system there’s a cap on your growth.”
According to Bloomberg News, TD has lost about $10 billion in market capitalization since the Wall Street Journal initially reported on the laundering case. On Friday of last week, TD’s share price fell 5.8 per cent, marking the worst drop since March 2020, Bloomberg says.
Dechaine says that a lower stock price shouldn’t be too enticing to investors.
“Valuation alone isn’t a reason to buy a stock,” he said. “You have to think, ‘What’s the cause for the valuation to be that low?’ In this case, it’s such a murky situation with a lot of uncertainty and with a lot of long term implications as well. That seemed a little too simplistic to focus on the valuation alone.”
“Wait and see. Don’t be early to the party.”
With files from Bloomberg.com and The Canadian Press
TD risks an earnings hit from U.S. laundering probe, analysts say
, Bloomberg News
TORONTO-DOMINION BANK (TD:CT)
REAL-TIME QUOTE. Prices update every five seconds for TSX-listed stocks
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 US$2 billion, rather than previous expectations of US$500 million to US$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 $1 billion (US$730 million) in the report’s worst-case scenario, a figure that includes $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 stock slumped by as much as 6.8 per cent on Friday, eventually closing down 5.9 per cent, its biggest one-day decline since the outset of the pandemic in March, 2020.
Toronto-Dominion shed $8.2 billion in market capitalization Friday after already dropping by $2.4 billion on Thursday when shares sunk in the wake of the Journal’s anti-money-laundering report. Shopify Inc. briefly passed it as the second-largest company by market capitalization on the Toronto Stock Exchange.
“TD is a strong institution with the capital, liquidity and capacity to fund the critical effort currently underway to strengthen its AML program, invest in the business and continue to serve its customers and clients with excellence,” bank spokesperson Lisa Hodgins said in an emailed statement Friday. “As we have said, we anticipate and continue to plan for additional monetary penalties, which are not reliably estimable at this time.”
In addition to the Department of Justice investigation, the Toronto-based lender faces three separate regulatory probes, and it already set aside an initial provision of US$450 million for just one of those.
“We believe that a total penalty amount of US$2 billion is realistic. However, fines alone aren’t the only financial consideration,” the National Bank analysts said.
The major issue is the prospect of a consent order from one or more U.S. agencies, which could include penalties such as an asset cap on growth or restrictions on mergers and acquisitions for a period of time.
U.S. consent orders in the 2010s and this decade against HSBC Holdings Plc and Wells Fargo & Co. — for laundering tied to cartels and false-account activity, respectively — are relevant precedents, though they are “worst-case scenarios,” the National Bank analysts said, adding that they’re assuming that the issues involving Toronto-Dominion are less severe.
“Not only were the direct financial penalties assessed against each institution very large,” Dechaine and his colleagues wrote, “the long-term implications were materially negative to future performance.”
‘Bad Look’
Toronto-Dominion first disclosed last year that it was under investigation by the Department of Justice, and has said repeatedly that it can’t estimate the final size of any fines or other penalties it might face tied to the anti-money-laundering investigations.
“At a high level, we learned why this is going on,” said Dan Rohinton, portfolio manager at iA Global Asset Management. The firm’s retail mutual funds have about 4 million Toronto-Dominion shares. “I don’t want to say this too flippantly, but this isn’t a run-of-the-mill internal-control issue. This is a priority issue for the U.S., where drug-overdose deaths are around 100,000 per year.”
Investors are still going to be waiting for clarity, Rohinton said, adding that they will want information on the size of the penalties and the scale of ongoing investments Toronto-Dominion is likely to make to correct for any potential compliance failures.
“It’s a bad look,” he said. “I do think this is more negative than when we just knew that TD was under investigation through multiple agencies.”
