A person makes their way past a Toronto-Dominion Bank in the Financial District of Toronto on August 14, 2023. THE CANADIAN PRESS
TD Bank Group faces the prospect of steeper penalties, as indicated by a banking analyst, following revelations tying its U.S. investigation to the laundering of illicit fentanyl proceeds.
National Bank analyst Gabriel Dechaine underscored the necessity to reassess TD's potential worst-case scenario after the Wall Street Journal disclosed this connection. The U.S. Justice Department's scrutiny revolves around allegations that Chinese drug traffickers exploited TD for laundering sums exceeding US$653 million, alongside bribing bank personnel.
While TD refrained from directly confirming the report, CEO Bharat Masrani admitted to inadequacies in the bank's anti-money laundering (AML) defenses. Masrani emphasized the obligation to combat illegal activities perpetrated by criminals targeting financial institutions, acknowledging shortcomings in TD's AML program, which failed to effectively monitor, detect, report, or respond to suspicious transactions.
TD revealed ongoing efforts toward a comprehensive overhaul of its AML program, already investing over $500 million in program remediation and platform enhancements.
The severity of the allegations suggests TD could confront fines surpassing initial estimations of $500 million to $1 billion, with potential regulatory constraints imposed on its business operations, Dechaine asserted. He stressed the imperative for investors to accord greater weight to worst-case scenarios for TD's stock.
The cumulative fines could conceivably escalate to $2 billion, accompanied by regulatory measures such as restrictions on balance sheet expansion, exerting long-term implications on the bank's activities, Dechaine cautioned. In a dire scenario, the issue might erode TD's future earnings by over $1 billion. Consequently, Dechaine revised down his price target for TD's TSX-listed shares by nearly nine percent to $84.
Coinciding with the revelations linking TD to drug trafficking, the bank disclosed provisioning $450 million for the ongoing U.S. regulatory inquiry into its AML compliance program.
Concurrently, Canada's financial-crime watchdog, Fintrac, imposed a $9.2-million penalty on TD for non-compliance with anti-money laundering and counter-terrorist financing measures.
TD Bank witnessed a nearly six percent decline in its stock price to $74.80 on the Toronto Stock Exchange, underscoring the market's apprehensions in response to the mounting regulatory challenges confronting the bank.
