TD Bank signage in Toronto's financial district, on Sept. 8, 2023.Andrew Lahodynskyj/The Canadian Press
If Canadian banks have a brand, it’s steadiness.
In the global financial crisis of 2008-09, banks around the world toppled while the big Canadian banks were comparatively stable. When three U.S. banks failed in early 2023, the mismanagement seemed inconceivable from a Canadian perspective.
Toronto-Dominion Bank’s TD-T money laundering debacle in the United States is a shock precisely because it’s so out of character for Canadian banks. The questions for clients of TD right now are what to make of this mess in a financial and ethical sense, and whether it can be turned to their advantage.
TD pleaded guilty to charges related to money laundering and agreed to pay more than US$3-billion in fines to U.S. authorities. Are you wondering if TD remains a safe place to keep your money? “It’s a valid question to ask, but I think their financial stability is fine,” said Carl De Souza, senior vice-president and sector lead for North American financial institution ratings at Morningstar DBRS.
Opinion: The TD Bank anti-money laundering debacle demands action from Ottawa on compliance risks
Mr. De Souza said TD has already set aside money to cover almost the entire fine, which means the financial blow is manageable. The impact on TD’s image/brand/trustworthiness is harder to settle. Some bank customers may be feeling uncomfortable about the bank’s lapse and wondering what to do about it.
Here’s a case for sticking with TD. Either TD becomes a better bank, or it risks losing its hard-won position as a leader among Canada’s big banks along with Royal Bank of Canada. TD, you may remember, was kind of a junior partner to the big banks until its 2000 purchase of Canada Trust. A decline into laggard status among the Big Six would be an acute embarrassment.
Under terms of its settlement with U.S. authorities, TD’s scope to build its retail banking business in the U.S. will be limited in the near term. Among the ways TD could offset this impediment is building its Canadian base.
Therein lies an opportunity for current and future TD clients. “To grow here, you have to take away from your competitors,” Mr. De Souza said. “And so, if anything, this might make pricing more competitive.”
A more competitive TD might decide to offer aggressive interest rate discounts on mortgages or lines of credit, or be willing to offer interest rate bumps on guaranteed investment certificates. There may also be room to deal on some fees and charges if you’re a loyal, multiproduct client.
Shaming TD in your negotiations might not be the best plan. Instead, consider saying you feel open to building your relationship with the bank despite recent events, but want a gesture of good faith to seal the deal.
Analysis: TD Bank has to change its business strategy to cope with regulatory straitjacket
Mr. De Souza said he’d be surprised if TD looked at higher fees and borrowing costs as a way to increase revenues. Still, bank clients would be wise in the months ahead to read all the notices they receive about changing terms for TD products.
An obvious question for TD clients – and investors – right now is whether the bank’s ethical fail on money laundering was a one-off, or a sign of systemic bad judgement or worse.
Regulators and whistle-blowers may yet have something to say about TD. But we have to imagine the bank is running a system-wide audit to identify and address non-exemplary practices. The same applies to other banks, by the way. They’ll be revving up to compete with TD in every way, but not its notoriety.
It may help your thinking on TD to know how the bank is viewed in the bond and stock markets right now. S&P Global Ratings has downgraded TD’s long-term credit rating to A+ from AA-, which still leaves the bank in line with competitors. Morningstar DBRS on Wednesday changed the trend on TD’s credit rating to negative from stable, while confirming the long-term rating at AA (high).
TD shares traded this week at close to the same price as a year ago, which means the bank’s shareholders missed the 36.6 per cent increase for the financial sector over the 12 months to Sept. 30.
Based on historical precedent, TD is due to increase its quarterly dividend. A dividend hike typically reflects a stable, growing business with additional wealth to pass along to shareholders. TD will very much want to project itself as just that kind of company, so keep an eye on what it does.
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