Why is TD’s profit down?

TD’s response to money laundering questions

Despite repeated questioning from analysts, the bank didn’t provide any new information such as timelines or expected penalties on the multiple investigations it faces in the U.S., but Masrani said the bank is doing all it can to help wrap them up.

“We have freely shared all information we have with the Department of Justice and other U.S. regulators, even when it demonstrated our weaknesses,” he said.

Were it not for the money laundering issue, which the bank has already spent $500 million to fix, the quarter would have looked quite different. The bank reported net income of $2.56 billion or $1.35 per diluted share for the quarter ended April 30, down from $3.31 billion or $1.69 per diluted share in the same quarter last year.

Adjusting for the charges and other outliers, TD said it earned $2.04 per diluted share, up from an adjusted profit of $1.91 per diluted share a year earlier.
The results, helped by a 10% rise in revenue to $13.82 billion, were well above the average analyst estimate of $1.85 per share, according to data provided by LSEG Data & Analytics.

Will it impact business? Or is it business as usual?

“A big beat with a big asterisk,” wrote Scotiabank analyst Meny Grauman in a note. He said the results were mixed, given the beat was driven mostly by better-than-expected expenses and lower taxes, while the anti-money laundering issues still loom large. While the U.S. regulatory issues are a concern, the potential impact on business in its biggest growth market is a longer-term risk. Grauman said he didn’t see signs of that yet in the latest results. The possibility remains though.

According to a report by the Wall Street Journal that TD hasn’t refuted, the U.S. Justice Department investigation is focused on how Chinese drug traffickers allegedly used TD to launder at least US$653 million and bribed TD employees to do so. 

The seriousness of the allegations means the bank’s cumulative fines could easily hit $2 billion and TD could also face restrictions, including limits on its balance sheet growth, that could affect bank operations for years, National Bank analyst Gabriel Dechaine said when the report surfaced in early May. 
The Globe and Mail reported late Wednesday that the bank also faces orders from Canada’s banking regulator to fix its risk controls, prompting analysts to question if the bank faces more global problems.

Masrani pushed back against the report, saying the bank is in constant dialogue with regulators. “It is unfortunate that the report contains inaccuracies and misrepresents our normal course, business-as-usual interactions with Canadian regulators.