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TD Suspends Growth Guidance in Wake of Historic Settlement

By Christine Dobby

December 05, 2024

(Bloomberg) -- Toronto-Dominion Bank suspended its medium-term financial targets amid a review of company strategy as the incoming chief executive officer seeks to move the lender past a historic money-laundering settlement with US authorities.

Canada’s No. 2 bank is “is currently undertaking a strategic review of organic opportunities and priorities, productivity and efficiency initiatives, and capital allocation alternatives,” it said in a statement Thursday. During the review, Toronto-Dominion is suspending medium-term financial targets for earnings growth, return on equity and operating leverage.

“We are looking at our business mix, including profitability and risk-adjusted return on capital, and where we need to invest and divest to improve,” Raymond Chun, the bank’s incoming CEO and current chief operating officer, said on a conference call with analysts. Asked if Toronto-Dominion would consider US divestitures, Chun reiterated an earlier remark that “everything is on the table.”

The company has been operating under the overhang of sweeping US investigations for well over a year, and finally resolved those cases in October after pleading guilty to failing to prevent money laundering by drug cartels and other criminals. It also agreed to pay almost $3.1 billion in fines and other penalties and faces a cap on its American assets.

The bank’s shares slumped 5.5% to C$75.26 at 11:50 a.m. in Toronto. They’ve dropped 12% this year.


Toronto-Dominion earned C$1.72 per share on an adjusted basis in its fiscal fourth quarter, according to the statement, missing the C$1.83 average estimate of analysts in a Bloomberg survey.

Net income at the company’s US retail unit totaled C$863 million ($614 million) for the three months through October, down 32% and less than analysts expected, during what the bank called a “challenging quarter” for the business.

‘Irrelevant’ Results

“TD’s earnings in the fourth quarter were irrelevant to its outlook,” Jefferies Financial Group Inc. analyst John Aiken said in a note to clients, pointing to Toronto-Dominion comments that “it will be challenging to generate earnings growth” in fiscal 2025. “We do not believe that the fourth quarter will provide any valuation relief and investors will need to be patient for a catalyst to release the pent-up value in TD.”

The long wait ahead for new guidance will give investors little to hold onto, making the “investment thesis here more challenging, despite the very deep discount to peers,” according to Bank of Nova Scotia analyst Meny Grauman.

“We know that there are many moving parts here, but the features of the bank’s settlement have been known for some time by the market and likely even longer internally, and we would have hoped that TD would have been able to provide a little more concrete guidance to investors here right now,” Grauman said in a research note.

Toronto-Dominion’s strategic review, which Chun said began last month, is expected to take several months, with an investor day planned for sometime in the second half of fiscal 2025.

The bank is in the midst of reducing its US assets by 10% to remain in compliance with the American asset cap and said reported net income in the US retail division includes the impact of that balance-sheet restructuring. Expenses in the US division were up on charges related to the money-laundering resolution.

In the firm’s capital-markets division, adjusted net income totaled C$299 million, missing the C$379 million average of analysts’ estimates. But that was up 68% from a year earlier, when it had higher expenses related to its integration of US investment bank Cowen Inc.

Toronto-Dominion’s provisions for credit losses totaled C$1.11 billion, in line with analysts’ forecast. Earlier Thursday, Bank of Montreal reported C$1.52 billion in provisions for potentially bad loans in the period, far exceeding estimates, with analysts speculating the lender could be taking large charges now to put the credit issues that have plagued it all year behind it.

‘Restore Morale’


Just weeks before the money-laundering resolution, Toronto-Dominion announced plans for Chun, who spent three decades across the bank’s operations, to succeed Chief Executive Officer Bharat Masrani when he retires next April.

“We believe that Mr. Chun has to restore morale in addition to revamping the bank’s strategy,” RBC Capital Markets analyst Darko Mihelic wrote in a report last month.

With the US asset cap in place indefinitely until lifted by American banking regulators, Toronto-Dominion’s stock is trading at a steep valuation discount to its peers — something likely to continue for the foreseeable future, Mihelic said.

Toronto-Dominion last month pre-announced higher-than-normal catastrophe-loss claims in its insurance business, saying it expects that figure to total C$388 million after reinsurance and before taxes in the quarter. The bank missed analysts’ estimates on adjusted earnings in the fiscal third quarter largely because of a jump in insurance claims owing to extreme weather and wildfires.

(Updates with executive comments, analyst comment beginning in third paragraph)

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