TD Bank Faces Declining Shares Amid Regulatory Challenges and Strategic Reassessment

Shares of TD Bank dropped approximately 6% after the institution announced it would delay updates to its financial targets until the second half of 2025. The bank, which is grappling with an asset cap and a $3 billion penalty stemming from a U.S. regulatory probe into its anti-money laundering program last year, is facing mounting pressures on multiple fronts.

Profits from TD’s U.S. retail operations plunged 34% compared to the previous year, falling to C$709 million ($505.5 million). Alongside these financial setbacks, the bank disclosed plans to conduct a strategic review encompassing growth opportunities, productivity initiatives, and decisions on where to invest or divest.

“Everything is on the table,” said Ray Chun, TD’s incoming CEO, during a call with analysts. Chun indicated that he is actively engaging with the strategic review process, which began last month. “It will be quite comprehensive, and we will look at all the moving parts,” he stated.

Bharat Masrani, TD’s current president and CEO, emphasized the importance of addressing regulatory shortcomings. “Remediation is our number one priority, and we continue to make meaningful progress in addressing the failures,” Masrani said in a statement on Thursday. Masrani is set to retire in April, at which point Chun will assume the role of CEO.

TD Bank has cautioned that fiscal 2025 will be a challenging year, particularly as it prioritizes investments in risk and control infrastructure. The institution’s regulatory troubles stem from deficiencies in its compliance program, which U.S. authorities found to have facilitated illicit activities such as narcotics trafficking, including fentanyl, and terrorist financing.

Analysts expressed concern about the bank’s lack of clarity regarding the long-term implications of the U.S. consent order. “Waiting another half a year or more for management to disclose the longer-run implications of its U.S. consent order leaves the stock without a proper anchor,” noted Meny Grauman, an analyst at Scotiabank.

The latest updates from TD come as the lender, along with Bank of Montreal, fell short of analysts’ expectations for quarterly profit. Both banks cited underperformance in their U.S. operations and higher-than-expected provisions for potential loan losses as key contributors to the earnings miss.

TD Bank’s challenges in the U.S. became public shortly after it abandoned a $13.4 billion acquisition of Tennessee-based lender First Horizon in 2022, a deal that would have expanded its footprint in the Southeastern U.S. The regulatory probe followed investigations at TD’s retail branches that reportedly began as early as 2021.

In the fourth quarter, TD’s adjusted net income declined 8% to C$3.21 billion. Earnings per share came in at C$1.72, falling short of analysts’ average forecast by 10 Canadian cents, according to data from LSEG.

As TD navigates regulatory hurdles and undertakes a strategic overhaul, the bank is contending with challenges that have cast uncertainty over its near-term and long-term growth prospects.

By fLEXI tEAM