Challenges keep mounting for TD Bank (TD), making a rough year for the Canadian banking giant even rougher.
The Toronto lender on Thursday reported a third quarter net loss of $133 million, largely in light of billions the bank set aside to pay for expected fines from an ongoing US investigation into its anti-money laundering practices.
The bank said in a separate filing Wednesday that it set aside an additional $2.6 billion to absorb expected penalties from the investigation, which is led by the Justice Department, on top of another $450 million set aside in April.
To raise money for those penalties, TD also sold 40.5 million shares it held in money manager Charles Schwab (SCHW), trimming its total stake to 10.1% from 12.3%.
TD’s stock fell 2% Thursday. It’s down nearly 10% year to date despite a broader rally across other financial stocks.
“While we are not through the tunnel yet, we can see the light at the end of this journey,” Bharat Masrani, TD Bank’s CEO, told analysts Thursday. “Our remediation program is well underway.”
The new disclosure this week comes after a year of escalating turmoil for TD, which is the second-largest bank based in Canada and has an American operation that ranks it as the 10th-largest bank in the US.
It was on its way to becoming an even bigger player in the US, fueled by a series of acquisitions that culminated in a 2022 announcement that it would buy Tennessee-based regional bank First Horizon (FHN) for $13.4 billion.
Read more: These are the 20 biggest banks in the US
But that plan collapsed in May 2023 as both sides pulled away, costing TD $306 million in termination fees and a separate $199 million loss. At the time, TD attributed the deal’s collapse to a lack of clarity about when the pact would be able to get regulatory approval.
Several months later things got worse when TD disclosed inquiries from law enforcement about compliance with anti-money laundering rules, including a Department of Justice investigation, and said it expected penalties as a result of the probe.
This year, the Wall Street Journal reported that the Justice Department’s investigation into TD’s controls focused on how Chinese crime groups and drug traffickers were using the Canadian bank to launder money tied to fentanyl sales in the US.
“We recognize the seriousness of our U.S. AML program deficiencies and the work required to meet our obligations and responsibilities is of paramount importance,” the CEO, Masrani, added in a press release.
Leo Salom, TD’s head of US retail banking, told analysts Thursday the bank has already added “over 500 colleagues” from other major banks, regulatory agencies, and law enforcement organizations to enhance its AML program.
Though some of that personnel “will fade away” over time, going forward there will be “a structural increase” to TD’s personnel and risk-related costs, Salom added.
One unknown is how much new regulatory oversight TD may face if it is, in fact, hit with billions in penalties.
A concern analysts posed to TD executives Thursday was the possibility of a so-called asset cap, where regulators would prevent TD from growing its balance sheet for a period of years.
San Francisco banking giant Wells Fargo (WFC) is still dealing with such a cap imposed by the Federal Reserve in 2018 as a result of its fake accounts scandal. The cap has stunted the bank’s growth relative to rivals.
TD executives could not meaningfully address those concerns due to the ongoing investigation.
“We’re in the middle of our negotiations. We’re making progress, and it’s not appropriate to speculate what the final deal would be,” Masrani said in response to a question about the possibility of an asset cap.
“I understand that you want to know more. And I’m looking forward to the day that we can provide you all the details that you need,” he said at the end of the call.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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