TD Bank Swings to Loss After Provision for Probes of Anti-Money Laundering Program

By Robb M. Stewart

Toronto-Dominion Bank reported a loss in the latest quarter despite higher revenue as it was hit by a number of charges, including a further hefty provision to cover anticipated costs to settle investigations into the bank's anti-money laundering program.

The bank saw a fiscal third-quarter net loss of 181 million Canadian dollars (US$133 million), or C$0.14 a share, against a year-earlier profit of C$2.88 billion, or C$1.53, a year earlier.

Stripping out items the bank doesn't believe reflect the underlying performance of its business such as restructuring costs, per-share earnings came in at C$2.05, missing the C$2.08 mean estimate of analysts polled by FactSet.

Overall revenue was 9.8% higher for the three months to July 31 at C$14.18 billion, beating the C$12.84 billion expected by analysts.

Ahead of its quarterly results, TD took a further $2.6 billion provision for the latest quarter to cover fines it expects would be needed to settle civil and criminal investigations into failings in the bank's anti-money laundering program by the U.S. Justice Department, prudential regulators and the Financial Crimes Enforcement Network. It comes on top of the initial $450 million provision taken a quarter earlier for the anticipated fines.

The bank said that with the provision its common equity tier 1 capital ratio was 12.8% as of July 31, with a further 0.35 percentage point hit to the ratio expected for the fourth quarter from the increase in operational risk. However, TD sold down its investment in Charles Schwab, cutting its stake to roughly 10% from just above 12% and increasing the ratio by 0.54 points for the final quarter of the fiscal year.

TD said a global resolution of the anti-money laundering investigations is expected to be finalized by the end of December. Analysts had projected TD might face billions of dollars in monetary and non-monetary penalties related to the deficiencies in its anti-money laundering program.

Among other one-time costs the bank faced in the latest period, it also continued to absorb further restructuring charges totaling C$110 million, mainly tied to employee severance and other personnel-related costs. The charge caps TD's restructuring program.

The credit-loss provision for TD, one of Canada's largest lenders, totaled C$1.07 billion, up just C$1 million from the prior quarter but C$306 million greater than a year earlier. The country's banks have been setting aside more money against the risk of loan losses as borrowers have been squeezed by sharply higher interest rates, though the Bank of Canada last month again cut its benchmark rate for a second time in as many months following a further cooling in inflation.

Despite the hit to the top line, President and Chief Executive Bharat Masrani said TD delivered record revenue and net income in Canadian personal and commercial banking and saw ongoing operating momentum in the U.S., as well as strong results across the bank's markets-driven businesses

TD, Canada's second-largest bank by market capitalization, recorded a 13% rise in net income in Canadian personal and commercial banking to C$1.87 billion, thanks to higher revenue that offset increased non-interest expenses and provisions for credit losses. However, the U.S. retail arm reported a net loss for the quarter of C$2.28 billion against year-ago net income of C$1.31 billion. Wealth management and insurance division net income was roughly flat at C$430 million, and wholesale banking net income rose by C$45 million from last year to C$317 million.

Write to Robb M. Stewart at robb.stewart@wsj.com

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August 22, 2024 06:50 ET (10:50 GMT)

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