Toronto-Dominion TD-T Bank’s chief executive officer says the bank has identified the weaknesses in its anti-money laundering procedures that have drawn attention from regulators, and that the lender is investing heavily in improving those processes.
Investors have been waiting for details on the expected fines or other penalties stemming from probes by regulators and law-enforcement agencies, including the U.S. Department of Justice, that derailed TD’s takeover of Tennessee-based First Horizon Corp. last spring.
While discussing Thursday’s first-quarter earnings results that topped analyst expectations, TD CEO Bharat Masrani said he cannot yet publicly share the nature of the gaps in its anti-money laundering, or AML, procedures.
“I know there are questions relating to the bank’s investments in our risk and control infrastructure, including in our AML program,” he said during a conference call with analysts. “We are making comprehensive enhancements. This is a priority for the bank and we take our responsibility seriously to live up to our high standards.”
He said TD has hired hundreds of employees across the company to support its risk and control operations.
“We know what the AML issue is, and we’re making progress is fixing it every day.”
In January, The Globe reported that TD is implementing a companywide action plan to strengthen its anti-money laundering controls and risk management practices, and that it had hired new senior executives to oversee the overhaul.
Analyst have estimated that the monetary penalties could range between US$500-million and $1-billion. But the greater concern for some investors is the long-term impacts of the non-monetary penalties that TD could face.
Such penalties could include a moratorium on U.S. bank acquisitions for three to five years and on its organic growth, CIBC analyst Paul Holden said in a note to clients before TD’s first-quarter earnings were released.
“It is the potential actions against future growth that are the real concern as U.S. banking had been the [number] one growth priority,” he said.
During TD’s fourth-quarter earnings call in November, Mr. Masrani said it would be “challenging” for the bank to meet its medium-term earnings per share objectives as it faces a tough macroeconomic outlook and expense pressure, “including investments to enhance the bank’s risk and control infrastructure and accelerate growth.”
At the time, TD said it expects to post an adjusted net loss of $200-million to $250-million per quarter in its corporate segment this year, a steep increase from the $100-million to $125-million in losses the bank previously anticipated. That increase will be driven by the lender’s investments in its risk and control infrastructure, and could continue beyond 2024.
Mr. Masrani is one of the longest-serving bank CEOs in Canada. TD has had some high-profile executive departures in recent years, prompting questions from investors about the bank’s plans for his successor.
“I’m really focused on strengthening the bank, serving our customers and creating value for our shareholders,” Mr. Masrani said in response to an analyst question. “We have a deep and highly experienced bench of senior leaders.”
Stefanie Marotta