MEG Energy says Trans Mountain expansion will boost Canadian oil prices 'for years'

Amanda Stephenson, The Canadian Press

The recently completed Trans Mountain pipeline expansion will boost Canadian oil prices for "years" to come, an executive with oilsands producer MEG Energy Corp. said Tuesday.

"It is great for industry and Canada to have that tremendous asset available," said MEG's vice-president of marketing Erik Alson during a conference call with analysts to discuss the company's first-quarter earnings.

Canadian heavy oil has historically sold at a discount to lighter U.S. crude, in part due to differences in product quality and transportation costs, but also due to a lack of pipeline export capacity that has limited market access for Canadian oil.

At times, that discount has been severe. Rising oilsands production and limited pipeline space in the fall of 2018 caused Canada's heavy oil benchmark price, known as Western Canada Select, to sell at nearly US$50 per barrel below the U.S. benchmark West Texas Intermediate. The government of Alberta ended up curtailing oil production in the province for a time to address the problem.

A similar problem occurred in 2012-2013, prompting then-Alberta premier Alison Redford to blame what she called the "bitumen bubble" for a massive shortfall in government revenues.

A 2020 study by IHS Markit estimated that insufficient pipeline export capacity resulted in US$14 billion in lost value to Canada between 2015 and 2019.

But the Trans Mountain pipeline expansion is expected to change things. The expansion, which marked its official opening last week, gives Canadian oil shippers access to an additional 590,000 barrels-per-day of pipeline capacity and opens up new markets for oilsands product in Asia and along the U.S. Pacific Coast. 

MEG is one of the main beneficiaries of the Trans Mountain expansion, with 20,000 barrels per day of contracted capacity on the pipeline.

Prices for Canadian heavy oil increased, and the WCS-WTI differential narrowed, in April in anticipation of the start-up of the pipeline expansion and Alson said Tuesday he expects that to be a long-term trend.

"With this critical infrastructure now complete, we anticipate light-heavy differentials will remain narrow for years," he said.

Oilsands companies have had years to ramp up their production in advance of Trans Mountain coming online, since the pipeline expansion was first proposed a dozen years ago and took more than four years to construct. Many analysts have suggested that the pipeline will quickly be filled, something Alson acknowledged.

"As an industry, we have a history of filling available egress, and I think that will happen again over time," he said. 

"There are various estimates as to when that could occur. We’ve seen (projections) as recent as two years, others within five or six. Our thinking is closer to the outer end of that time frame."

Alson said he does not expect another oil pipeline to be built in Canada. But he said a potential future expansion of Enbridge Inc.'s Mainline pipeline network, which has been expanded many times in its 75-year history, could offer some relief to oil shippers once Trans Mountain is full. 

He said there may also be ways to enhance the efficiency, or "de-bottleneck" other existing pipelines without starting from scratch with new construction.

MEG Energy Corp. said it earned $98 million in its first quarter, up from $81 million during the same quarter last year.

The Calgary-based company's revenues totalled $1.4 billion, down from $1.5 billion a year earlier.

Diluted earnings per share were 36 cents, up from 28 cents. 

Bitumen production averaged about 104,000 barrels per day during the period ended March 31. 

Former chief operating officer Darlene Gates stepped into the chief executive role at MEG on May 1, replacing outgoing CEO Derek Evans.

This report by The Canadian Press was first published May 7, 2024.

Oil begins moving on $34 billion Trans Mountain pipeline expansion

Amanda Stephenson, The Canadian Press

Canada's energy sector as well as the country's main oil-producing province celebrated Wednesday as the long-awaited $34-billion Trans Mountain pipeline expansion officially came online.

Crown corporation Trans Mountain Corp. issued a statement Wednesday confirming that oil is now moving on the expanded pipeline, which is currently 70 per cent full as crude continues to be added to the new system.

The company said the so-called "Golden Weld," the final piece of construction work required to complete the pipeline, took place April 11 in B.C.'s Fraser Valley, between the communities of Hope and Chilliwack.

It said tanker ships will be able to load oil for delivery to Pacific and Asian markets by mid-May.

“Trans Mountain has demonstrated that challenging, long linear infrastructure can be built in Canada,” said Trans Mountain Corp. CEO Dawn Farrell in the statement. 

“With our project management team and contractors, we were able to build 988 kilometres of new pipeline, 193 kilometres of reactivated pipeline, 12 new pump stations, 19 new storage tanks, and three new berths at Westridge Marine Terminal in Burnaby."

"This is a great day for Canada, to get this pipeline up and running," said Jon McKenzie, CEO of Cenovus Energy Inc. on a conference call with analysts Wednesday morning.

"The people of Canada are going to see the benefit for a long period of time in terms of increased taxes and royalties and the like."

Alberta premier Danielle Smith also hailed the milestone, saying in a news release that the expanded pipeline means "a new era of prosperity and economic growth."

"The completion of TMX is monumental for Alberta," Smith said. 

"For Alberta this is a game-changer. The world needs more reliably and sustainably sourced Alberta energy, not less."

The Trans Mountain pipeline expansion project involved twinning an existing pipeline that runs from Alberta to the B.C. coast. The expansion increases the Trans Mountain system's shipping capacity from 300,000 barrels per day to 890,000 barrels per day, and will help open up global export markets for Canadian oil.

The increased capacity is also expected to help improve the price Canadian oil companies receive for their product.

But while the project's completion is being hailed by Canada's energy sector as a win, it did not come easily. 

The pipeline expansion was first proposed in 2012 by Kinder Morgan Canada, which encountered so much environmental and Indigenous opposition that it ultimately threatened to scuttle the project. 

The federal government purchased the pipeline for $4.5 billion in 2018 in an effort to get the project over the finish line. Once construction did start, the project ran into numerous delays and budget overruns, with its price tag spiralling over the course of four years to an eye-popping $34 billion.

Cenovus' McKenzie said Wednesday he didn't want to taint "a great day" with too much talk of the project's challenges. But he suggested the difficulties encountered by Trans Mountain are indicative of a broader problem.

"I think as a nation we suffer — and I don't think I'm saying anything that people don't already know — from lower and decreasing productivity, and we need to find ways to get major projects built to get infrastructure built to the benefit of all Canadians," McKenzie said.

"And I think we would all realize that 13 years is far too long for a project of this national importance to get built."

The cost and challenges associated with building Trans Mountain also cast a shadow over its ultimate sale. The federal government has indicated it does not wish to be the long-term owner of the pipeline, but the expansion project's ballooning price tag means experts say the government will likely have to take a significant writedown if it is able to sell the asset.

The Trans Mountain saga has also left some wondering whether an oil pipeline will ever again be built in this country. 

Industry watchers say the Trans Mountain expansion will reach its maximum capacity within just a handful of years, thanks to increased oil output by Canadian producers. But the time, cost and regulatory burden associated with building a similar project would be major investment barriers.

"It is increasingly difficult to build pipelines in this country, and it wouldn't surprise me if this was the last pipeline," McKenzie said.

"But the reality is we have a tremendous resource here in Canada and we produce our oil in my view, more sustainably than probably anywhere else in the world. And if we were in a position where, as a nation, we decided to take that to market, we should be building more pipelines."

This report by The Canadian Press was first published May 1, 2024.

 

Alta. oil and gas company fined for violating methane rules

BNN Bloomberg

The Alberta Energy Regulator's mobile incident command. , Handout/Alberta Energy Regulator

The Alberta Energy Regulator has fined a Calgary-based junior oil and gas producer for failing to meet its fugitive emission and methane reporting requirements.

The regulator says it began investigating Tallahassee Exploration Inc. in 2022 and has determined the company broke Alberta's methane emission rules on two counts, with both violations occurring in 2021.

The AER also says Tallahassee provided false or misleading information by resubmitting information from the 2020 reporting period and representing it as data from the 2021 reporting period.

The company has been ordered to pay a $191,885 fine.

Methane is a potent greenhouse gas and is the second-largest cause of global warming, after carbon dioxide. It is the main component in natural gas and is also a byproduct of oil drilling.

Fugitive emissions is a term that refers to the unintentional or unwanted release of harmful gases into the atmosphere as a result of oil and gas drilling activity.

Canada has set a target of reducing oil and gas methane emissions by at least 75 per cent from 2012 levels by 2030. New proposed federal rules for the oil and gas sector would prohibit the routine controlled release of methane — a practice known as venting and flaring — from oil and natural gas operations, as well as require companies to invest in enhanced leak detection and repair. 

This report by The Canadian Press was first published May 7, 2024.

 

Young Canadians feel poorer in warning sign for economy, Trudeau

Jay Zhao-Murray, Bloomberg News

Canadians are feeling gloomy about their personal finances — and Generation Z is the gloomiest of all.

The Nanos Pocketbook Index, a measure of how people perceive their personal finances and job security, fell to 50 last week, matching its April 2020 low. It’s one component of the broader Bloomberg Nanos Canadian Confidence Index, which also gauges the public’s expectations about the economy.

Young people are driving the pocketbook index lower. For respondents aged 18 to 29 — who are mostly members of Gen Z, along with the youngest millennials — the index fell to 40, the lowest recorded in its 16-year history.

The youth index has been in free-fall since the last week of March, down 17 points in just five weeks. The recent sharp deterioration is worse than in April 2020, the depths of the pandemic recession, when Canada’s gross domestic product fell by 10.7 per cent.

Just 11 per cent of respondents of all ages said their personal finances have improved over the past year, the lowest going back to the inception of the Bloomberg Nanos survey in 2008, while 50 per cent say their finances have gotten worse.

In a technical sense, Canada has avoided a recession so far. That’s mostly due to explosive migration-led population growth, which has kept the economic pie from shrinking. The slices have grown smaller, however. On a per-capita basis, the economy has shrunk three per cent since September 2022. 

Signs of strain among young people are especially visible in the labour market, where job gains have not kept up with the surging population. Youth unemployment has risen about four times faster than unemployment for all age groups.

In March, Canada’s unemployment rate was 6.1 per cent, up 1.1 percentage points since December 2022. Over the same period, unemployment among 15 to 29 year olds was up 4.3 percentage points to 10.9 per cent. New data for April will be released on Friday.

Financial difficulties among young people are a broader warning sign for the Canadian economy. And they don’t do anything to boost the country’s meager birth rate, since affordability concerns discourage many young couples from starting families. 

Canada’s lack of affordability, particularly in the housing market, has led young people to turn their backs on Prime Minister Justin Trudeau. The under-30 crowd now largely favours the Conservative Party, a historical aberration.

Trudeau tried to win those voters back with his youth-focused April budget, but his polling numbers have continued to decline.

Methodology

Every week, Nanos surveys about 250 Canadians for their views on personal finances, job security, the economy and real estate prices. Bloomberg publishes four-week rolling averages of the 1,000 telephone responses.

The poll has a margin of error of about three percentage points, 19 times out of 20. The range of error may be wider when talking about subsets of the overall population because the survey sample size is smaller. 

 

Competition Bureau launches inquiry into Lululemon over 'greenwashing' allegations

The Canadian Press

Canada's Competition Bureau has launched an inquiry into Vancouver-based Lululemon following a complaint from members of an environmental group.

Stand.earth had asked the bureau to investigate the athletic-wear giant in February, alleging Lululemon is misleading customers about its climate impacts.

The group issued a statement earlier this year saying Lululemon has been using the slogan "Be Planet" as part of its "impact agenda" released in 2020, but the company's own reports reveal a doubling of greenhouse-gas emissions since then.

A spokeswoman for the Competition Bureau confirmed Monday that it has launched an investigation into "alleged deceptive marketing practices."

The bureau says there is no conclusion of wrongdoing at this time. 

A statement from Lululemon says the company is "confident" the investigation will confirm its representations to the public are "accurate and well-supported."

The company is committed to co-operating on any next steps, it adds.

The statement says Lululemon is working to help "create a garment industry that is more sustainable and addresses the serious impacts of climate change."

"This work is far from complete," it says.

Lululemon's 2022 impact report says its products and actions help lead the industry "toward a climate-stable future where nature and people thrive."

The report says the company aims to meet a series of climate action targets by 2030, including a 60-per-cent reduction in emissions intensity for "Scope 3" operations, which encompass the making and shipping of clothing globally.

But Lululemon's reports, cited by Stand.earth, show total emissions for that category rose to nearly 1.7 million tonnes, up from about 830,000 tonnes in 2020.

Those "Scope 3" activities represent 99.7 per cent of the company's total carbon footprint, the 2022 report says.

A statement earlier this year said Lululemon's "decarbonization plan" aims to help it become a "net-zero company" by 2050 with a 90-per-cent reduction in emissions.

Luluelmon has so far met its goals to power its own facilities with renewable electricity while cutting those emissions by 60 per cent, it said.

The company recognizes that the majority of its carbon footprint comes from emissions "within the broader supply chain," the statement said. 

Lululemon has contributed $10 million to a fund aimed at accelerating climate action in the global apparel industry, it added.

A statement from Rachel Kitchin, senior corporate climate campaigner at Stand.earth, notes that Lululemon is providing Team Canada's kit for the upcoming Paris Olympics and Paralympics, representing the country on the world stage.

"Our athletes deserve to be at their absolute best in a brand that aligns with their values as Canadians, and not misled by deceptive and greenwashing marketing."

 

Loblaw boycott organizer says she met with CEO to talk about grocery prices

Rosa Saba, The Canadian Press

One of the organizers of a month-long boycott of Loblaw-owned stores says she met with the grocer's president and CEO Per Bank on Thursday afternoon.

Emily Johnson, who started the Reddit page that led to the boycott, said she shared shoppers' concerns and questions with Bank, a European retail executive who took on the top role about months ago. 

"Obviously, the boycott is still on," said Johnson. But she said she's "confident in the fact that we got an audience, we have their attention, and they're listening to what we have to say and what we want to do."

Loblaw said earlier in the week that it had reached out to boycott organizers to set up a meeting.

Bank believes the conversation was productive, said Loblaw spokeswoman Catherine Thomas: "We’re listening, and thought it was important to hear her concerns in person." 

The CEO discussed some of the things the grocer is doing to try to help customers struggling with the cost of living, Johnson said. 

One of these is removing "multi-buy" promotions —  where customers get a better price per unit if they buy more than one item — from No Frills stores. 

Shoppers on tighter budgets can't take advantage of such deals if they aren't able to afford four items instead of one, for example, even when the price per unit is lower.

"Customer feedback in those stores was that it wasn’t a benefit to them (particularly as basket sizes are smaller there) and that they value this change," said Thomas in an email. "In other stores, where customers tend to buy more, multi-buys are often a popular sale."

Bank and Loblaw chairman Galen Weston spoke at the company's annual general meeting Thursday where they pushed back on what they called "misguided criticism" of the company. 

“Let me assure you that in every corner of the business, our colleagues are working hard to reduce costs and do things more efficiently. These efforts enabled us to reinvest savings to offset the impact of price inflation in our stores,” Bank told shareholders at the meeting. 

Johnson started a Reddit page about high grocery prices in November and it quickly attracted attention from frustrated shoppers. It now boasts tens of thousands of members.

As the number of people in Johnson's Reddit group grew, so did calls for a boycott. The official start date for the boycott was May 1, the same day that Loblaw reported its first-quarter profits grew by almost 10 per cent from the same period last year. 

Customers have been growing increasingly frustrated with rising food prices and the profits earned by grocery companies, and Loblaw has been at the epicentre of many of these frustrations. 

“As a well-known company and Canada's largest grocer, it is natural that Loblaw would be singled out as a focal point for media and government and of course consumer frustrations,” Weston said at Thursday's meeting. 

Johnson said the request for a meeting from Loblaw took her by surprise, and at first she and the other organizers weren't sure whether she should take it. 

"For me, it was ... 'let's hear them out,'" she said. "Because if we're not here to to fix the problem, or if we're not here to try and fix the problem, you know, then why are we boycotting at all?" 

"My goals were to sit down and to have the conversation with him, to share these perspectives, to hear their perspective and to present that information back to the community."

On May 3, the boycotters also launched a petition sponsored by NDP MP Matthew Green calling upon Parliamentarians to address "monopolistic practices in the food retail sector," investigate practices like shrinkflation and allegations of price-fixing or collusion, implement measures to promote fair competition in the food retail industry, explore ways to prevent "excessive price gouging on essential food items," and make Loblaw and Walmart sign the grocery code of conduct. 

A House of Commons committee has been studying food prices as well as the grocery code of conduct, and has urged the two grocers to sign on. And last June, the Competition Bureau released a report on the grocery sector, calling it concentrated and making recommendations to improve competition in the industry. 

Johnson previously told The Canadian Press that while the primary aim of the boycott is to have a financial impact on the company, she also hopes the boycott educates people and gets the attention of government.

This report by The Canadian Press was first published May 3, 2024.

 CRIMINAL CAPITALI$M

TD hopes to soon reach 'global Resolution' of drug-money probes

Christine Dobby, 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

Mitchell Consky, 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

Christine Dobby, Bloomberg News

TORONTO-DOMINION BANK (TD:CT)

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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.”