Good morning, and welcome to Friday.
Remember Monday morning? That was before we knew Ottawa would reveal the most significant relaxation of the country’s mortgage rules in more than a decade; that Rogers had reached a deal to buy BCE Inc.’s share of Maple Leaf Sports & Entertainment; that the U.S. Federal Reserve would decide on a deeper cut to its key lending rate; and that yesterday, Toronto-Dominion Bank would announce it has anointed a relatively unknown insider as its new chief executive.
On any other week, I might have at least touched upon the news that Tupperware Inc. had filed for bankruptcy protection. But this was not that week. (The Tupperware story shouldn’t go stale anyway.) Today, we have more on TD’s big change – and the challenges in store for its new CEO. But first:
In the news
On our radar and reading list
In sports: Bell Canada parent BCE Inc. is taking a “trust me” approach with Rogers Communications Inc. on the $4.7-billion sale of its stake in Maple Leaf Sports & Entertainment by agreeing to a deal that won’t be financed until it closes next year, Andrew Willis reports.
In pursuit: The lawyer in charge of chasing down millions in unpaid bills owed to the now shuttered Minden Gross LLP says a small number of the firm’s former partners are hindering the collection efforts, by continuing to work with the delinquent clients at their new jobs without helping to get outstanding invoices paid.
On the clock: While the number of federal civil servants has surged over the past eight years, Ottawa has still had to fork out $9.2-billion in overtime pay in that period, newly released documents show. The federal government paid more than $1.26-billion in overtime to public sector workers last year – a 50-per-cent increase from 2017.
Happening today
- Bank of Canada Governor Tiff Macklem speaks about artificial intelligence and the economy.
- Statistics Canada reports core retail sales for July and the new housing price index for August.
In focus
Challenges await TD’s new chief executive
Raymond Chun takes over as CEO at TD’s next annual general meeting in April.Galit Rodan/The Globe and Mail
The news
Toronto-Dominion Bank has named a new chief executive as the lender attempts to move past a U.S. regulatory crisis.
- Raymond Chun, currently the head of Canadian banking, will take over as CEO at TD’s next annual general meeting in April.
- After 10 years as CEO, Bharat Masrani will step into an advisory role until Oct. 31, 2025.
The timing
Bank CEOs tend to retire after a decade, but the announcement comes as the bank finds caught up in a major money-laundering scandal in the U.S.
- It recently set aside US$3-billion to cover financial penalties, and it also faces potentially more damaging non-financial penalties that would limit the bank’s ability to grow in the U.S.
In a statement, Masrani shouldered the blame for the anti-money-laundering (AML) crisis:
- “The anti-money laundering challenges we face took place on my watch as CEO and I take full responsibility. In the coming months, I will continue to advance and direct the critical remediation program required to meet our obligations and responsibilities and strengthen our risk and control foundation.”
Troubles ahead
As The Globe and Mail recently reported, the bank faces several issues beyond AML:
- Increasingly dense layers of bureaucracy have stifled decision-making.
- TD’s share price has dramatically underperformed the S&P/TSX Composite Index over the past five years.
- It’s worth reiterating the risks posed by regulators who might limit the bank’s ability to grow in the U.S. – a key part of the bank’s strategy for years.
- The bank has been under investigation by three separate U.S. regulators, as well as the U.S. Department of Justice.
And succession planning was upended when a number of highly respected leaders left.
So, who is Raymond Chun?
Currently the head of Canadian banking, Chun will become chief operating officer effective Nov. 1 and then take over as CEO at TD’s next annual general meeting in April.
In a statement, TD board chair Alan MacGibbon described Chun as a “dynamic leader with a long track record of success across multiple leadership roles.”
Perhaps more to the point: Bank of Nova Scotia analyst Meny Grauman observed in a note to clients that “Mr. Chun is a seasoned executive, and not directly tied to any of TD’s issues in the U.S.”
In that same note, he wrote: “While the market will NOT be surprised by Bharat’s departure, it WILL be surprised by who has been chosen as his replacement.”
He might not be a known commodity on Bay Street, Jameson Berkow writes. But it is the culmination of a goal he has pursued since joining the bank’s management training program in 1992.
- As group head of Canada’s personal banking division, he oversaw almost 21,000 employees in more than 1,000 branches across the country, according to the bank’s website.
- He started at TD in 1992 and has held several senior executive roles in quick succession in recent years – overseeing TD Direct Investing, Wealth Management and TD Insurance.
- Born in Korea, Chun studied at the University of Western Ontario and Queen’s University.
A messy race to the top
Chun was not a top contender in the succession race at this time last year. But TD also needed to rethink its future when TD’s former Canadian banking boss Michael Rhodes left to become CEO of Ally Financial, one of the largest car finance companies in the U.S.
That departure left at least two other internal candidates:
- Bank veteran Riaz Ahmed, who currently runs TD Securities and was a trusted lieutenant to both TD’s current CEO as well as former CEO Ed Clark.
- But TD announced yesterday that Ahmed will be retiring next year.
- Leo Solom, who currently runs the U.S. retail banking arm. He remains in that role.
Amid a flurry of separate promotions and changes the bank announced, Chun’s appointment also ended speculation that the bank would bring in an outsider to fix its cultural issues.
Prosperity’s path
How Canada’s middle class got shafted
Successive governments have been warning about Canada’s slowing productivity for more than three decades. Now, as the cost of living rises and per-capita economic output shrinks, this problem has reached an inflexion point. In the first of a series, Dan Breznitz lays out how we got into this productivity crisis, and how we can get out.
His piece does as fine a job I’ve seen explaining what we mean, exactly, when we talk about “innovation” and “productivity,” and it’s timely in the wake of many of the news developments this week.
Morning markets
Global markets took a breather after major rallies yesterday on the U.S. Federal Reserve’s outsized interest rate cut and its dovish guidance on further reductions. North American futures pointed lower following record closes for the S&P 500 and the S&P/TSX Composite Index.
Overseas, the pan-European STOXX 600 was down 0.63 per cent in morning trading. Britain’s FTSE 100 declined 0.57 per cent, Germany’s DAX dropped 78 per cent and France’s CAC 40 gave back 0.63 per cent.
In Asia, Japan’s Nikkei closed 1.53 per cent higher, while Hong Kong’s Hang Seng rose 1.36 per cent.
The Canadian dollar traded at 73.66 U.S. cents.