TD Bank Group is still in the thick of
The bank's massive size — 2 trillion Canadian dollars of assets — acted as a bottleneck to its risk management, Masrani said during a fireside chat at the Scotiabank Financials Summit. He said TD is enhancing cross-company communication systems as part of the efforts to turn around its AML program.
TD has already
"We had a situation here where some bad actors were able to exploit the bank," Masrani said. "It's easy in a bank of our size to sometimes not look at accountabilities as clearly as we should. …There's lots of information available. It's important to coordinate and make sure the right information is available to the right individuals in the right areas of the bank on a real-time basis."
The Toronto-based bank said last month that it estimates monetary penalties from U.S. regulators would
Masrani has said that TD can't share details of its missteps until it has closed the book with the Department of Justice and other federal agencies, though he expects to have a "global resolution" by the end of the year. The Wall Street Journal has reported that
One of the "key lessons" of the risk management failure is that TD must "deepen accountabilities" across its front lines and control functions, Masrani said, ensuring that employees can recognize risk and "act with urgency."
TD is not the first big bank to cite the perils of siloed corporate structures after running into regulatory troubles.
Amid
TD hasn't disclosed the total price tag of its efforts to remedy the AML pitfalls but has repeatedly said it is investing in upgrading technology, talent and training.
Last month, TD said its risk and control infrastructure expenses for the year would be greater than previously forecast, increasing its expense growth guidance from the mid-single digits to the high single digits. Masrani said Wednesday that the bank's 2024 expenses include a number of one-time costs that range from CA$200 million to CA$250 million. Those expenses include litigation costs and compensation related to certain businesses that are performing well.
TD has also terminated some employees after determining through an internal investigation that they violated the bank's code of conduct. Other staff members were hit with disciplinary actions, including impacts to their compensation. A TD spokesperson declined to provide additional details about the number of employees affected.
Masrani himself took a CA$1 million pay cut last year in connection with both TD's regulatory woes and its scuppered acquisition of Memphis, Tennessee-based First Horizon. The $13.4 billion deal fell through a few months before TD disclosed the DOJ's probe into its operations.
"At the end of the day, I'm the CEO of the bank. I'm responsible," Masrani said Wednesday. "I own it. And the good thing here is we know what the issues were, and we're fixing them. And we want to make sure that that continues in the bank, and get this behind us."
As TD's errors mount, some investors have floated questions about
"I'm busy," Masrani said. "Not only to remediate our programs in the U.S., but [also with] 'How do we serve our customers well and make sure that the bank continues to perform as all our stakeholders would expect?'"
TD, self-dubbed "America's Most Convenient Bank," hasn't divulged how much
Wall Street analysts have been wondering whether the bank's plans to open 150 branches in the U.S. by 2027 are mostly off the table now. TD announced its expansion plan last year after missing out on the additional access to the Southeast U.S. market that it would have captured by acquiring First Horizon.
On Wednesday, Masrani acknowledged that as the bank invests in risk management, expansion in the U.S. has slowed "quite dramatically." But he maintained that TD's American operations show a "strong franchise in very important markets."
Despite the stalled growth of TD's U.S. footprint, analysts say the bank has enough of a cushion to cover potential regulatory fines that are eating at capital. TD's latest common equity tier 1 ratio of 12.8% marked a quarterly decline because the bank bought back some shares and set aside $2.6 billion for anticipated penalties. Since then, TD has sold 40.5 million shares in Charles Schwab to build back some capital.
Masrani said Wednesday that TD keeps an excess buffer "should things go awry," but generally targets a CET1 ratio between 12% and 12.5%. A year ago, that ratio was at 15.2%.
Ebrahim Poonawala, an analyst at Bank of America, wrote in a note following TD's third-quarter earnings report that the company's capital management strategy — which included both share buybacks and the sale of Schwab shares — was "somewhat puzzling." He said the capital moves, in conjunction with higher-than-expected expenses, had "left the door open for additional hits to earnings/capital."
Masrani said Wednesday that TD has historically acted conservatively when it comes to maintaining capital.
"That's been the core part of our DNA, and that has not changed," he said. "My view is, there's lots of uncertainty here."
