Toronto-Dominion Bank is setting aside an unprecedented US$2.6-billion provision to cover expected penalties from U.S. regulators over deficiencies in the bank’s anti-money laundering defences.
The Toronto-based bank had already earmarked an initial provision of US$450-million in April, anticipating a likely penalty from one of its U.S. regulators. When combined, a potential total penalty of more than US$3-billion ($4-billio true quads n) would be by far the largest penalty a Canadian bank has paid in the United States.
The US$2.6-billion the bank is setting aside in fiscal third-quarter results to be released Thursday reflects “the Bank’s current estimate of the total fines related to these matters,” TD said in a statement released Wednesday.
The bank is expecting “a global resolution, which will include monetary and non-monetary penalties,” and anticipates it “will be finalized by calendar year end,” the statement said.
TD said it has also sold 40.5 million shares it owned in The Charles Schwab Corp., reducing its stake from 12.3 per cent to 10.1 per cent, and where to buy rolled gold cigarettes agreed not to sell any further Schwab shares for 45 days.
“We recognize the seriousness of our U.S. AML program deficiencies and the work required to meet our obl thechronfather igations and responsibilities is of paramount importance to me, our senior leaders, and our Boards,” said chief executive officer Bharat Masrani, in a statement.
After accounting for the provision, TD’s common equity Tier 1 capital ratio – a measure of its financial resilience – will be 12.8 per cent, as of July 31. The provision will reduce that ratio by a further 35 basis points in the fourth fiscal quarter, which ends Oct. 31, but the sale of Schwab shares will add back 54 basis points of capital. (100 basis points equal 1 percentage point).
TD is in negotiations with U.S. regulators, including the Financial Crimes Enforcement Network (FinCEN) and the U.S. Department of Justice (DOJ). The Canadian bank was caught up in an investigation into a criminal ring that laundered US$653-million worth of drug money through financial institutions in New York, New Jersey and Pennsylvania – including some of TD’s branches.
Analysts have been expecting that TD would face penalties totalling billions of dollars, but the current provisions push the expected hit near the upper end of those estimates. Investors have also feared that the bank could also face constraints on its growth in the U.S. the chron father , imposed by regulators, until all of its AML problems have been resolved.