TD Bank and Toronto Dominion Centre signage is pictured in the financial district in Toronto, Friday, Sept. 8, 2023.Andrew Lahodynskyj/The Canadian Press
Toronto-Dominion Bank’s TD-T retail banking growth in the United States will be constrained by an asset cap, adding to TD’s financial penalties from U.S. regulators and law enforcement for anti-money laundering failures, executives were told on a conference call Wednesday evening.
TD has already set aside $4-billion to cover financial penalties from three different regulators and the U.S. Department of Justice, but investors have been bracing for details of non-financial penalties that could limit how quickly the bank can keep growing in the United States.
At 7 p.m. on Wednesday, TD held a call with senior executives to say details had been finalized, and they include growth limitations on its U.S. retail banking business, according to someone familiar with the conversation.
The Globe and Mail is not identifying the source because they were not authorized to speak publicly.
The limitation comes in the form of an asset cap, preventing TD from expanding its balance sheet by adding new loans, for instance, because loans are considered assets. However, the asset cap will apply to the U.S. retail banking division, meaning other units, such as TD Securities, will still be able to expand their own balance sheets and lend to large corporate clients.
An asset cap also does not prevent TD from making new loans altogether. Bank loans are constantly maturing as mortgages and lines of credit are repaid, for instance, and these repayments free up space to lend.
Specific details are still to come, and TD said it will hold a conference call Thursday, though the bank did not state what will be discussed.
TD has been hampered by the money-laundering scandal since early 2023, when the bank disclosed it may not get regulatory approval for a proposed US$13.4-billion takeover of First Horizon Corp. Over the year and a half since, the bank killed the takeover because it could not get regulators’ blessings; set aside the $4-billion to cover expected financial penalties; and named a new chief executive officer.
In September, TD named Raymond Chun, a relatively unknown insider, as its next CEO. Mr. Chun will become chief operating officer effective Nov. 1 and then take over at the bank’s next annual general meeting in April. Mr. Chun is currently the head of Canadian personal banking, which is TD’s most profitable division.
On top of pulling Canada’s second-largest financial institution out of its U.S. regulatory crisis, Mr. Chun will have to restore morale because TD has also suffered from a cultural erosion that stifled financial performance, The Globe and Mail reported in August. Inside the bank, conservatism took hold and dense layers of bureaucracy hindered decision-making. Frustration over this, coupled with a U.S. regulatory crisis that kept snowballing, contributed to a number of respected leaders leaving the bank.
When financial institutions fall into the crosshairs of law enforcement, asset caps are typically reserved for the most severe cases. In the U.S., the asset cap imposed on Wells Fargo & Co. in 2018, which limited its balance sheet to US$1.95-trillion in assets, is often held up as one of the more extreme examples.
Beyond the growth limitations, asset caps can be difficult for banks because there often are no specific end dates, and lenders have to apply to regulators to get them lifted. Six years on at Wells Fargo, the bank is still limited by its own cap.
On Wednesday, the Wall Street Journal reported that TD’s $4-billion in total fines (US$3-billion) will be split between multiple bodies. The Justice Department will receive around US$1.8-billion and FinCEN will get US$1.3-billion.
TD has also been spending heavily to fix and upgrade its technology systems that assist with detecting money laundering. Earlier this year the bank said it had already spent $500-million on the initiative, and more is expected, which means TD faces the double whammy of constrained U.S. growth and elevated expenses.
In a statement in September, Bharat Masrani, TD’s outgoing CEO, addressed the anti-money-laundering woes that have plagued the bank. “The anti-money laundering challenges we face took place on my watch as CEO and I take full responsibility,” he said in a statement.
“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.”
TD declined to comment for this story.