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TD Bank (TD) Takes $2.6B Hit for AML Penalty, Sells Schwab Stake
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In anticipation of a year-end global resolution of the investigations into its anti-money laundering (AML) practices by U.S. regulators, Toronto-Dominion Bank (TD - Free Report) has taken a further provision of $2.6 billion in its fiscal third-quarter results.
In addition to the $450-million provision announced in April, TD estimates that it will have to pay $3 billion in connection with its compliance failures.
Bharat Masrani, the CEO of TD Bank, stated, “We recognize the seriousness of our US AML program deficiencies. The work required to meet our obligations and responsibilities is of paramount importance to me, our senior leaders and our boards.”
Schwab Stake Sale
In order to fund the above-mentioned penalty, TD has sold 40.5 million shares of Charles Schwab (SCHW - Free Report) , which reduces the bank’s ownership interest in SCHW from 12.3% to 10.1%.
Notably, TD Bank got a stake in SCHW in 2020 after the U.S. brokerage firm concluded the acquisition of TD Ameritrade Holding (in which Toronto-Dominion had a 43% stake).
However, Toronto-Dominion said that it does not expect to sell any additional SCHW shares for a period of 45 days, subject to certain exceptions.
Per Toronto-Dominion, because of the $2.6 billion hit it is taking in the fiscal third quarter, its common equity tier 1 (CET1) ratio will reduce to 12.8%.
In the fiscal fourth quarter, the provision will have a further negative impact of 35 basis points on TD’s CET1 ratio because of increased operational risk. However, the Schwab sale will result in an increase in the ratio by 54 bps.
A Little About the Investigations Into TD Bank’s AML Practices
Last year, after Toronto-Dominion’s landmark $13.4 billion deal to acquire First Horizon collapsed, the Canadian lender started receiving inquiries from the U.S. Department of Justice, financial regulators and the Treasury Department regarding its AML practices.
The core allegations have been that TD Bank failed to catch money laundering and other financial crimes at several branches in the United States, where customer-facing employees took bribes to help move money.
To date, federal prosecutors in New Jersey have filed at least four cases alleging serious misconduct by branch employees in New York, New Jersey and Florida.
In response, TD Bank said that it has fired about a dozen front-line workers for code-of-conduct breaches. Also, the bank has replaced about 10 senior leaders in compliance and legal roles in the wake of the money-laundering allegations.
Over the past six months, TD Bank shares have lost 1.1% against the industry’s 13.4% growth.
Another big name that has been hit with AML investigations recently is HSBC Holdings’ (HSBC - Free Report) Switzerland branch, HSBC Private Bank (Suisse) SA. In June, the Swiss Financial Market Supervisory Authority (“FINMA”) ruled that HSBC Private Bank (Suisse) SA violated money laundering regulations. In a press release, FINMA said that the ruling follows enforcement proceedings opened by it in December 2021, which focused on HSBC’s banking relationships with two unnamed politically exposed people.
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TD Bank (TD) Takes $2.6B Hit for AML Penalty, Sells Schwab Stake
In anticipation of a year-end global resolution of the investigations into its anti-money laundering (AML) practices by U.S. regulators, Toronto-Dominion Bank (TD - Free Report) has taken a further provision of $2.6 billion in its fiscal third-quarter results.
In addition to the $450-million provision announced in April, TD estimates that it will have to pay $3 billion in connection with its compliance failures.
Bharat Masrani, the CEO of TD Bank, stated, “We recognize the seriousness of our US AML program deficiencies. The work required to meet our obligations and responsibilities is of paramount importance to me, our senior leaders and our boards.”
Schwab Stake Sale
In order to fund the above-mentioned penalty, TD has sold 40.5 million shares of Charles Schwab (SCHW - Free Report) , which reduces the bank’s ownership interest in SCHW from 12.3% to 10.1%.
Notably, TD Bank got a stake in SCHW in 2020 after the U.S. brokerage firm concluded the acquisition of TD Ameritrade Holding (in which Toronto-Dominion had a 43% stake).
However, Toronto-Dominion said that it does not expect to sell any additional SCHW shares for a period of 45 days, subject to certain exceptions.
Per Toronto-Dominion, because of the $2.6 billion hit it is taking in the fiscal third quarter, its common equity tier 1 (CET1) ratio will reduce to 12.8%.
In the fiscal fourth quarter, the provision will have a further negative impact of 35 basis points on TD’s CET1 ratio because of increased operational risk. However, the Schwab sale will result in an increase in the ratio by 54 bps.
A Little About the Investigations Into TD Bank’s AML Practices
Last year, after Toronto-Dominion’s landmark $13.4 billion deal to acquire First Horizon collapsed, the Canadian lender started receiving inquiries from the U.S. Department of Justice, financial regulators and the Treasury Department regarding its AML practices.
The core allegations have been that TD Bank failed to catch money laundering and other financial crimes at several branches in the United States, where customer-facing employees took bribes to help move money.
To date, federal prosecutors in New Jersey have filed at least four cases alleging serious misconduct by branch employees in New York, New Jersey and Florida.
In response, TD Bank said that it has fired about a dozen front-line workers for code-of-conduct breaches. Also, the bank has replaced about 10 senior leaders in compliance and legal roles in the wake of the money-laundering allegations.
Over the past six months, TD Bank shares have lost 1.1% against the industry’s 13.4% growth.
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Currently, TD Bank carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Another Foreign Bank Facing AML-Related Probes
Another big name that has been hit with AML investigations recently is HSBC Holdings’ (HSBC - Free Report) Switzerland branch, HSBC Private Bank (Suisse) SA. In June, the Swiss Financial Market Supervisory Authority (“FINMA”) ruled that HSBC Private Bank (Suisse) SA violated money laundering regulations. In a press release, FINMA said that the ruling follows enforcement proceedings opened by it in December 2021, which focused on HSBC’s banking relationships with two unnamed politically exposed people.