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TD Bank Group reports profits down 22 per cent on anti-money laundering hit

Written by on May 23, 2024

TORONTO — TD Bank Group’s second-quarter profit fell 22 per cent from last year as it booked costs related to high-profile failures of its U.S. anti-money laundering program.

The bank had warned ahead of time of the $615 million initial charge it was taking in connection with its talks with U.S. regulators, allowing analysts to adjust expectations that the bank then handily beat.

“It was a strong quarter for TD with all of our businesses outperforming expectations,” said chief executive Bharat Masrani on an earnings call Thursday, just after reiterating the bank’s mea culpa on its anti-money laundering controls.

Despite repeated questioning from analysts, the bank didn’t provide any new information such as timelines or expected penalties on the multiple investigations it faces in the U.S., but Masrani assured that the bank is doing all it can to help wrap them up.

“We have freely shared all information we have with the Department of Justice and other U.S. regulators, even when it demonstrated our weaknesses,” he said.

Were it not for the money laundering issue, which the bank has already spent $500 million to fix, the quarter would have looked quite different.

The bank reported net income of $2.56 billion or $1.35 per diluted share for the quarter ended April 30, down from $3.31 billion or $1.69 per diluted share in the same quarter last year.

Adjusting for the charges and other outliers, TD says it earned $2.04 per diluted share, up from an adjusted profit of $1.91 per diluted share a year earlier.

The results, helped by a 10 per cent rise in revenue to $13.82 billion, were well above the average analyst estimate of $1.85 per share, according to data provided by LSEG Data & Analytics.

“A big beat with a big asterisk,” wrote Scotiabank analyst Meny Grauman in a note. He said results were mixed really, given the beat was driven mostly by better-than-expected expenses and lower taxes, while the anti-money laundering issues still loom large.

While the charges related to the U.S. regulatory issues are a concern, the potential impact on business in its biggest growth market is a longer-term risk. Grauman said he didn’t see signs of that yet in the latest results.

“A key risk for the quarter was that any material weakness in the U.S. business would be viewed as a sign of growth constraints in the context of the bank’s regulatory issues. The good news is that we did not see evidence of that.”

The Globe and Mail reported late Wednesday that the bank also faces orders from Canada’s banking regulator to fix its risk controls, prompting analysts to question if the bank faces more global problems.

Masrani pushed back against the report, saying the bank is in constant dialogue with regulators.

“It is unfortunate that the report contains inaccuracies and misrepresents our normal course, business-as-usual interactions with Canadian regulators.”

Masrani also said the bank, with a capital ratio of 13.4 per cent, has the capital buffers to address uncertain market conditions and various scenarios that may play out this quarter, and is well positioned for a slower economy.

The bank’s provision for credit losses amounted to $1.07 billion for the quarter, up $472 million from last year, and up $70 million from last quarter.

TD reported its Canadian personal and commercial banking business earned $1.74 billion in its latest quarter, up from $1.63 billion in the same quarter last year.

Meanwhile, TD’s U.S. retail business earned $580 million, down from $1.41 billion in the second quarter last year.

The bank’s wealth management and insurance business earned $621 million, up from $524 million a year earlier, while its wholesale banking operations earned $441 million, up from $213 million a year ago.

This report by The Canadian Press was first published May 23, 2024.

Companies in this story: (TSX:TD)

Ian Bickis, The Canadian Press