TD Bank (NYSE:TD) announced better-than-expected quarterly earnings, driven by robust performance in Canada and its wealth management unit, even as its U.S. segment faced challenges due to ongoing probes related to its anti-money laundering program.
Despite facing a U.S. Department of Justice investigation regarding its involvement in a $653 million drug money-laundering case in New York and New Jersey, TD Bank remains optimistic about the U.S. market’s growth prospects. CFO Kelvin Tran emphasized the bank’s commitment to expanding its footprint in the U.S., with significant investments in program remediation and platform enhancements totaling over $500 million.
Acknowledging “procedural weaknesses” in the U.S. operations, CEO Bharat Masrani expressed disappointment in employees who failed to adhere to the bank’s code of ethics. TD has taken decisive action against responsible employees, including termination. However, adjusted earnings in the U.S. fell by 17% as the bank set aside $450 million to cover potential fines and anticipated further regulatory penalties.
Despite these challenges, the U.S. remains a critical market for TD Bank, contributing a significant portion of its profit. The bank has pursued an aggressive expansion strategy in the region over the past decade, acquiring smaller regional banks and establishing a network of 1,100 branches. Although the proposed acquisition of First Horizon was withdrawn last year, TD remains committed to its U.S. growth strategy, planning to open approximately 150 branches.
National Bank analyst Gabriel Dechaine cautioned that the costs associated with addressing the anti-money laundering issues could exceed TD’s forecasts, potentially impacting its ability to support the stock via buybacks. He anticipated further challenges ahead, with estimated fines potentially reaching $2 billion and posing a significant hit to the bank’s capital ratio.
In contrast, TD Bank reported a 7% increase in net income in its home market of Canada, supported by loan growth and initiatives to attract new customers, such as the partnership with India’s HDFC bank. Additionally, the Wealth Management and Insurance unit saw a notable 19% rise in net income.
Overall, TD Bank’s adjusted net income for the quarter reached C$3.79 billion ($2.77 billion), or C$2.04 per share, compared to C$3.71 billion, or C$1.91 per share, in the same period last year. Despite the challenges posed by the anti-money laundering probe, the bank remains resilient, with strong performance in key segments driving its overall profitability.
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Author Faith Yakubu 
