(Bloomberg) — A veteran Canadian banking analyst says the Toronto-Dominion Bank’s role in an alleged money laundering scheme has made the “worst-case scenario” more likely: a huge fine for the lender and years of restrictions on its growth in the United States.
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The U.S. Justice Department is investigating the bank over its ties to a $653 million drug money laundering case in New York and New Jersey, a person familiar with the matter told Bloomberg last week . The investigation focuses on how Chinese criminal groups used Toronto-Dominion and other banks to hide money from fentanyl sales in the United States, the Wall Street Journal reported May 2.
This comes on top of another case in which one of the New Jersey branch’s employees was accused of taking bribes to facilitate the laundering of drug money.
“With the bank allegedly a central institution in a drug money laundering scheme, the worst-case scenario has become more likely, with TD potentially entering a lost decade,” John Aiken, an analyst at Jefferies, said in a note to customers Monday. “Growth in the United States will likely be limited and the time frame to address this is extended by several years.”
Toronto-Dominion dove into the U.S. regional banking market nearly two decades ago when it acquired a majority stake in Banknorth Group, and it has since become a serial acquirer, focusing on eastern markets the United States. But the bank was sidelined due to its regulatory problems. A year ago, it abandoned a proposed acquisition of Memphis, Tenn.-based First Horizon Corp. because it couldn’t get regulatory approval in a timely manner.
The bank announced an initial $450 million provision for regulatory sanctions last week, before the Journal’s report was published, and said more was to come as investigations were conducted by several regulators. The “simple math” implies Canada’s second-largest bank will have to pay $2 billion, Aiken said.
“However, because there is absolutely no certainty about how regulators will proceed, the standard deviations around this estimate are likely measured in billions rather than hundreds of millions,” Aiken wrote.
Toronto-Dominion has lost about C$10 billion ($7.3 billion) in market capitalization since the Journal reported the drug money connection on Thursday. Toronto’s 5.8% share price decline on Friday was the worst since March 2020.
Shares rebounded a bit on Monday, rising about 1% to C$75.51 as of 11:39 a.m. in Toronto.
Apparent compliance lapses at TD could cast a shadow over the management team and lead shareholders to demand a shake-up, Aiken added. There has already been a change at the helm of its U.S. retail division, with Leo Salom taking over the role in 2022. Few members of the executive committee have held their position for a significant period of time, it said. Aiken.
An “unacceptable” failure
“Criminals relentlessly target financial institutions to launder money and TD has a responsibility and obligation to thwart their illegal activities…
