People walk past a TD Bank branch in Toronto, on Aug. 22. On Wednesday, TD predicted it will pay a total of roughly US$3-billion to U.S. regulators – one of the largest anti-money laundering sanctions ever seen.Christopher Katsarov/The Globe and Mail
Toronto-Dominion Bank TD-T answered two key questions this week by setting aside US$2.6-billion to pay penalties for allowing drug dealers to launder bags full of cash in its U.S. branches.
On Wednesday, TD predicted it will pay a total of roughly US$3-billion to U.S. regulators – one of the largest anti-money laundering (AML) sanctions ever seen – and strike a settlement by the end of the year. Prior to this point, the size and timing of the penalty were unknown. As analyst Meny Grauman at Scotiabank put it, this “may be the beginning of the end” of TD’s AML woes.
The country’s second-largest bank now has at least two more big issues begging for resolution before it can begin to recover from self-inflicted wounds.
Chief among them is whether regulators impose additional sanctions on the U.S. retail network, long the bank’s growth engine, as conditions for doing business? On Thursday, Mr. Grauman said in a report: “The real issue in our view has always been and remains the non-monetary penalties that are sure to be part of a final settlement with the U.S. authorities.”
The sanctions TD agrees to will play a major role in determining who succeeds chief executive Bharat Masrani as he prepares to depart after a decade at the helm.
TD’s next CEO inherits the formidable task of rebuilding a bank humbled by scandal, an institution many believe has lost its mojo.
In the worst-case scenario, if the AML settlement imposes severe restrictions on TD’s operations, reflecting bank-wide compliance issues, TD’s board should be recruiting external candidates as the next CEO.
Hiring an outsider would previously have bordered on unthinkable at TD, a bank with a proud corporate culture. But two years ago, the unthinkable happened at Scotiabank, when Scott Thomson won the top job after a decade running a heavy equipment dealer, Finning International. There a precedent for importing a CEO as an agent of change.
Does anyone on the TD board have Mark Carney’s number? Or know any of the legions of executives frustrated in their attempts to succeed JPMorgan Chase’s Jamie Dimon, head of what’s widely viewed as the best-run U.S. bank?
If TD agrees to less onerous penalties – a slap-on-the-wrist, such as enhanced monitoring from U.S. regulators, for example – succession is likely an internal affair.
John Turley-Ewart: Who’s ultimately at fault for TD’s U.S. money-laundering woes? Canada’s regulator
Before TD’s money laundering issues came to light, head of U.S. retail banking Leo Salom was the clear front-runner to be the next CEO. A veteran of Citibank and Barclays in Europe, he joined TD in 2011. Mr. Salom began running the U.S division two years ago.
If TD’s growth strategy continues to be focused on U.S. expansion, and regulators give Mr. Salom their blessing, he becomes the sensible choice as the next CEO.
If, on the other hand, regulators keep TD in the penalty box by forbidding U.S. acquisitions, Mr. Salom’s skills becomes less important to the bank’s future. In that scenario, the engine for growth becomes Canadian operations, and the pace of expansion slows.
TD’s next logical leader would be someone with deep expertise in the domestic businesses, along with the ability to inspire. The list of potential successors would start with the head of TD’s profitable Canadian retail banking unit, Ray Chun, whose division exceeded expectations on performance when the bank reported financial results on Thursday, and the head of wealth management and insurance, Tim Wiggan.
Where will TD end up with U.S. regulators? The bank’s experience over the past year points to a final settlement with onerous restrictions on its American ambitions.
In 2023, on Mr. Salom’s watch as head of U.S. banking, U.S. regulators blocked TD’s planned US$13-billion acquisition of Memphis-based First Horizon Corp. The deal fell apart at a time when regional players such as First Horizon faced significant balance sheet issues and Silicon Valley Bank had collapsed.
American officials preferred the uncertainty of independence at First Horizon to the security of having deep-pocketed TD as the U.S. bank’s owner. That decision speaks to the depth of the regulators’ concerns with the bank’s AML systems. It makes the head of one of TD’s Canadian divisions the leading candidate to be the next CEO, in competition with executives from outside the bank.