TD Risks ‘Lost Decade’ in US Money-Laundering Scandal, Jefferies Says
A distinguished Canadian bank analyst has raised concerns over Toronto-Dominion Bank’s involvement in an alleged money-laundering operation, highlighting that the bank may face a significant setback. The connection to a money-laundering case involving $653 million from drug trafficking activities in New York and New Jersey puts the bank in a precarious position. This scrutiny comes alongside charges against an employee from one of the bank’s New Jersey branches, who was accused of accepting bribes to assist in laundering drug money.
According to John Aiken, an analyst at Jefferies, “With the bank allegedly a focal institution in a drug money-laundering scheme, the worst-case scenario has become more likely with TD potentially entering a lost decade. Growth in the US will likely be strained, and the timeline for resolution is extended by several years.” This commentary reflects on the potentially crippling impact such allegations could have on Toronto-Dominion’s operations in the United States.
Toronto-Dominion Bank has already set aside an initial $450 million for regulatory penalties, with indications that more could be required. Aiken suggests that the “simple math” might mean the bank is bracing for penalties as steep as $2 billion. This comes in the wake of the bank’s significant loss in market value, exceeding C$10 billion ($7.3 billion), following reports by the Wall Street Journal that linked the bank to the drug-money laundering case.
The aftermath of these allegations has been stark, with Toronto-Dominion experiencing its most significant share price drop since March 2020, falling by 5.8% in one day. In response, Mike Rizvanovic, an analyst at Keefe, Bruyette & Woods, has adjusted the price target for Toronto-Dominion, indicating a potentially prolonged recovery period for the bank’s stock.
On a more optimistic note, Meny Grauman from Bank of Nova Scotia suggests that the recent sell-off might have been an overreaction. He posits that despite the potential for growth constraint, there is little justification to conclude that Toronto-Dominion’s earning potential in the US has been completely eroded. Grauman implies that while the immediate outlook may be bleak, the fears surrounding the bank’s US operations might be exaggerated.
This series of events sheds light on the significant challenges Toronto-Dominion faces amidst allegations of facilitating money laundering. While the full extent of the repercussions remains to be seen, the bank’s journey ahead is marked by uncertainty and the formidable task of regaining trust and stability in its operations, particularly within the United States.
