TD Bank Group discloses U.S. regulatory inquiry into compliance practices

TD Bank Group revealed Thursday that it expects U.S. regulators to impose penalties related to its anti-money laundering compliance program.

The bank made the disclosure in its third-quarter filing as it reported profit fell compared with a year ago and announced a significant expansion of a share buyback program.

TD has been fielding formal and informal inquiries from regulatory authorities about its compliance program, it said in its report to shareholders. It has been responding generally and “in connection with specific clients, counterparties or incidents in the U.S., including in connection with an investigation by the United States Department of Justice,” the bank said.

Chief executive Bharat Masrani said on an earnings call Thursday that the bank was working to boost its compliance efforts, while declining to provide any details on current discussions with regulators.

“We are working hard to enhance our programs,” he said in response to analyst inquiries.

“We take this very seriously and make the appropriate investments and enhancements that fit our organization to manage the risk. And I’m really confident that in time, we will deliver the required enhancements.”

The disclosure comes after the bank called off its proposed US$13.4 billion takeover of U.S.-based First Horizon bank in May, citing regulatory uncertainty. Media reports at the time said that the bank’s anti-money laundering compliance program was a key sticking point for regulators.

TD said in its filing that while the outcome of the regulatory inquiries and investigations are unknown, it anticipates monetary and/or non-monetary penalties to be imposed.

Along with the inquiry, the bank on Thursday said its net income totalled $2.96 billion, down from $3.21 billion in the same quarter last year, as it saw a rise in provisions for credit losses as well as higher expenses in part related to its failed bid to buy First Horizon.

The bank also announced a plan to buy back 90 million shares, or about 4.9% of outstanding shares, after it completes a 30-million share buyback program.

The program comes as the bank sits on extra cash set aside for the First Horizon deal and lingering questions about its growth plans following the collapse of the deal.

TD chief financial officer Kelvin Tran said in an interview that the buybacks were part of the bank’s consistent capital deployment approach that balances organic growth, acquisitions and payouts to shareholders.

“This strategy depends what’s optimal any point in time, but we’re really happy that we can do that by returning excess capital to shareholders.”

The bank’s adjusted earnings amounted to $1.99 per diluted share in its latest quarter, down from an adjusted profit of $2.09 per diluted share in the same quarter last year.

The result fell below the average analyst estimate of $2.04 per diluted share, based on estimates compiled by financial markets data firm Refinitiv.

The miss came in part from higher than expected provisions for credit losses that totalled $766 million, up from $351 million a year earlier, Barclays analyst John Aiken said.

The higher-than-expected provisions came largely from the bank’s extensive U.S. operations, where earnings also disappointed.

“The miss can largely be attributed to weaker earnings in its U.S. retail segment, which saw margins decline and provisions increase,” he said in a note.

He said, however, that the modest miss will likely be offset by the share buyback program.

Revenue at the bank totalled $12.78 billion, up from $10.93 billion in the same quarter last year.

TD said its Canadian personal and commercial banking business earned $1.66 billion compared with $1.68 billion in the same quarter last year, mainly due to higher provisions for credit losses, partially offset by revenue growth.

Tran said the bank’s operations were boosted by new accounts, up 26% year-over-year, driven by a record quarter for new-to-Canada accounts, while it also saw record spending on Canadian credit cards.

Mortgage volumes are also rebounding from the lows earlier this year, despite higher rates, he said.

“Obviously when rates go up, people are a little bit more cautious, but structurally, there’s a lot of demand.”

And while those rates are affecting consumers, credit card revolving balances remain below pre-pandemic levels and overall client credit profiles look good, he said.