TD Bank CEO asks shareholders for patience as U.S. regulatory probe stretches into second year

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Toronto-Dominion Bank TD-T chief executive officer Bharat Masrani pleaded with shareholders for patience on the probe by U.S. regulators into the lender’s anti-money-laundering practices as the investigation stretches into its second year.

Mr. Masrani fielded questions from frustrated shareholders at the company’s annual meeting Thursday, who asked about the status of a lengthy probe by U.S. regulators that derailed the bank’s takeover of Tennessee-based First Horizon Corp. last spring.

He said he still cannot provide further details on the investigation as the bank is working on addressing the concerns from U.S. regulatory and law-enforcement agencies.

“Without a doubt, shareholders have some anxiety regarding our issue in the U.S.,” Mr. Masrani said. “I’ve said to our shareholders as I’ve said today: Be patient, we will be able to share more details on that. But fundamentally, your bank is doing very well.”

Last year, TD said that it expects to face fines or other penalties stemming from probes by regulators and law-enforcement agencies, including the U.S. Department of Justice, related to its anti-money-laundering practices.

Some analysts have estimated that the fine could range from US$500-million to US$1-billion.

The probe drove the derailment of TD’s acquisition of Tennessee-based First Horizon Corp., a takeover that would have significantly accelerated TD’s growth ambitions in the U.S.

If the deal had proceeded, TD would have picked up hundreds of retail branches and tens of billions of dollars in assets in the lender’s fastest-growing market. Instead, TD now plans to open 150 U.S. retail branches by 2027, largely in Florida, North Carolina, South Carolina, Georgia and Atlanta.

The bank’s efforts to remediate its anti-money-laundering processes are weighing heavily on its balance sheet. Last year, TD said it expects to post an adjusted net loss of $200-million to $250-million per quarter this year in its internal corporate segment, driven by investments in its risk and control infrastructure.

In January, The Globe reported that TD had implemented an action plan to strengthen its anti-money-laundering controls and risk-management practices in response to concerns raised by regulators. TD brought on a new chief global anti-money-laundering officer and associate vice-president and head of its Canadian financial-intelligence unit to oversee the shift, and hired McKinsey & Co. and other external consultants for support on regulatory and other matters in the U.S.

“We know what the issues are. We are working to fix them,” Mr. Masrani said in response to a shareholder question. “We’ve onboarded a great team and attracted terrific talent that are first class in this area, and engaged tremendous advisers on this as well.”

Investors have also been concerned over TD’s succession planning, citing a lack of experience among top executives prepared to take on the CEO role.

In December, a high-profile executive departure triggered a shakeup in TD’s C-suite. Head of Canadian banking Michael Rhodes – who had been considered a candidate for the top job – left for the role of CEO at Illinois-based Discover Financial Services.

Mr. Masrani has been at the helm of the bank for a decade, which is the typical term for a Canadian bank CEO, prompting questions on the imminence of his departure.

“As you can imagine, a bank of our size, scale and profile would have very robust succession plans – and we do. Our board is very engaged, as would be other departments of the bank,” Mr. Masrani said in response to a shareholder question. “When the time comes you will see that TD, like it has for many years, will see a seamless and terrific executive takeover for my position.”

TD Bank CEO took pay cut in 2023 amid U.S. regulatory probe

Shareholders also voted Thursday against proposals asking the bank to publicize its CEO compensation-to-median-employee pay ratio, disclose the effects of divestment from the Canadian oil and gas sector, link employee compensation to environmental, social and governance initiatives and combat tax havens.

While a proposal failed calling on the bank to disclose its transition activities and how they align with emissions-reduction targets, it received more than a quarter of support from shareholders voting in favour – a slight uptick from last year’s results on the same motion.

“This growing show of support from shareholders signals to management that they remain concerned about how the bank will manage its growing climate transition risk,” said Kyra Bell-Pasht, director of research and policy at Investors for Paris Compliance, in a statement. “Investor pressure will only grow for accountability at the bank as the climate crisis accelerates.”