(Bloomberg) -- Toronto-Dominion Bank posted its first quarterly loss in decades as the bank took a US$2.6 billion provision for fines tied to U.S. money-laundering investigations and saw results hurt by issues including extreme weather and wildfires.
Canada’s second-largest lender reported a $181 million loss as the expected costs of the long-running probe into its compliance lapses surged. Even excluding that charge, earnings fell short of expectations as the firm’s insurance business suffered a jump in claims. The quarterly net loss was the first for Toronto-Dominion since 2003.
The bank’s shares slumped as much as 4.8 per cent Thursday before recovering slightly, and were down 2.7 per cent to $79.09 at 12:43 p.m. in Toronto. They’ve declined 7.6 per cent this year, compared with an 8.3 per cent increase for the S&P/TSX Composite Financials Index.
The results come a day after Toronto-Dominion said it anticipates paying a total of more than US$3 billion in penalties related to U.S. compliance lapses. The bank said it expects to finalize a “global resolution” by the end of the year and sold some of its stake in Charles Schwab Corp. to fund the latest provision. Chief Executive Officer Bharat Masrani’s future is also in question, according to National Bank of Canada analyst Gabriel Dechaine, who said Wednesday’s announcement “clears the way for CEO succession.”
Toronto-Dominion CEO Bharat Masrani speaks during the bank’s annual general meeting in April.
Toronto-Dominion faces allegations that it failed to catch money laundering and other financial crimes at several U.S. branches, with prosecutors having filed at least four cases in New York, New Jersey and Florida. It’s under investigation by the U.S. Department of Justice, financial regulators and the U.S. Treasury Department. The new provision followed an earlier charge of US$450 million, announced in April.
The latest news provides some clarity on the time line of a resolution as well as the amount of fines the bank may pay, which is at the high end of many analysts’ projections. But the big unknown remains what type of non-monetary restrictions Toronto-Dominion will be under and for how long, with limits on the growth of its U.S. business a serious risk.
“While we are not through the tunnel yet, we can see the light at the end of the journey,” Masrani said on a conference call Thursday.
Masrani’s future at Toronto-Dominion, meanwhile, remains an open question.
“Providing clarity (if not certainty) of the direct financial consequences ‘clears the deck’ for a potential successor,” Dechaine wrote in a note to clients.
Toronto-Dominion’s landmark US$13.4 billion deal to acquire First Horizon Corp., a regional player in the southeastern U.S., fell apart in May 2023, with the Canadian lender saying it was unclear regulators would ever green-light the deal. Soon after, the bank had to acknowledge that it was receiving inquiries from regulators and law enforcement.
Masrani said on Thursday’s call that the company’s U.S. division remains an important part of Toronto-Dominion’s future.
The company — the first of the big Canadian banks to report results this quarter — earned $2.05 a share on an adjusted basis in the fiscal third quarter, according to a statement Thursday, falling short of the $2.07 average estimate of analysts in a Bloomberg survey.
Toronto-Dominion incurred $110 million of charges for restructuring for the three months through July. The bank been cutting jobs and real estate expenses, partly to counter higher spending on compliance controls, and said the restructuring program is now complete.
At the company’s wealth-management and insurance unit, insurance-claims cost soared 20 per cent from a year earlier as clients were affected by wildfires in Alberta and severe weather events in the greater Toronto area, where heavy rains have caused flooding in recent months. Net income in the division came in at $430 million, little changed from a year earlier and down from $621 million in the second quarter.
Toronto-Dominion reported record revenue in its Canadian personal and commercial banking unit, where profit grew 13 per cent from a year earlier to $1.9 billion. It also had record revenue in the wealth-management business, although profit was dented by the higher insurance claims.
©2024 Bloomberg L.P.
