Question marks abound for TD Bank Group, including its next step after
The Toronto company, which operates across North America, hasn't made clear which executive or executives are in line to take the reins from current CEO Bharat Masrani, 67, or when that transfer might occur.
A "series of missteps," including possible federal anti-money-laundering violations and the
Masrani, who became CEO in 2014, said he spends a lot of time thinking about succession planning when asked about the topic at an industry conference in early January.
"Succession planning is a core part of what we do in the bank for every major position, including my own," Masrani said at the conference. "It's a major mandate of our [human resources] committee. … We feel very comfortable that whenever we have situations, we've been able to manage it quite effectively."
According to TD's corporate governance guidelines, the board of directors and HR committee are responsible for succession planning for the senior leadership of the bank, and must, at least annually, review and approve succession plans for top leadership positions.
Mike Rizvanovic, an analyst at Keefe, Bruyette & Woods, said in an interview that he thinks Masrani will stay at the helm of the $1.96 trillion-dollar company at least until the dust has settled on the Justice Department investigation so that the next leader can start with "a clean slate." Rizvanovic said the board and shareholders would prefer if current management saw the company's issues through.
"He's definitely toward the later innings of his tenure," Rizvanovic said. "It'd be tough for him to leave in the midst of what a lot of investors are very concerned about right now."
TD announced in August that it was cooperating with the probe into its anti-money-laundering compliance, just months after the bank finally
Rizvanovic said there's been a lack of transparency from the bank regarding the investigation, which has fueled "angst" from investors.
"Whether TD's CEO chooses to (or be asked to) fall on his sword, we believe that strategic changes are coming for the bank," the Jefferies analysts wrote. "TD's management needs to change the narrative."
Rizvanovic added that the probe has also made succession strategies more complicated. He said he doesn't think there's one individual that investors have overwhelmingly pointed to as an heir apparent to Masrani, but that it's the "million-dollar question."
Leo Salom, who serves as president and CEO of the company's U.S. subsidiary based in Cherry Hill, New Jersey, would have been a fair, but not surefire, bet to be a successor a couple of years ago, the analyst said. The increased emphasis on the U.S. from the planned acquisition of First Horizon, based in Memphis, Tennessee, made Salom a likely contender, but it's unclear how Masrani would pass the baton to Salom amid the U.S. operation's compliance troubles, Rizvanovic said.
"If you go back two years when they first announced [the First Horizon deal], I don't think anybody would have expected that we'd be sitting here in early 2024, and there would be no visibility on when Bharat was looking to finally step aside," Rizvanovic said.
Canadian banks may see a number of CEO shake-ups in the future, but the spotlight is on TD, the Jefferies note said. Masrani is the oldest of the CEOs at large banks in the country, who range from about 48 to 60, though several of the other leaders have served in their roles for similar lengths of time as the TD chief.
According to a report from executive search firm Spencer Stuart, the average age of outgoing CEOs across the S&P 1500 in 2023 was 61.6 years old, a small drop from 2022. The firm also reported that 69% of S&P 500 companies have mandatory retirement ages for board directors, nearly all of which are capped at 75 years old.
TD Bank Group does not have a mandatory retirement age for its CEO, a company spokesperson said. There is a 10-year term limit for directors, the spokesperson said, but it doesn't apply to the CEO, who is required to serve on the TD board.
Rizvanovic said in "Canadian bankland," succession plans are evident well before they happen, and the market doesn't like surprises. For example, last year Laura Dottori-Attanasio, who had been a strong possibility for CIBC's next CEO, surprised the industry by leaving the bank, the analyst said. In late 2022, the Bank of Nova Scotia tapped a non-banker board member as its next chief executive, which the Jefferies note should be seen as a "cautionary tale."
"[Masrani] remains focused on the important work ahead to meet our customers' needs and deliver for our shareholders," said TD spokesperson Lisa Hodgins in an email. "TD has a deep leadership bench supported by a comprehensive talent development agenda. Our robust succession-planning process is overseen by the board and continues to serve the bank well.
Rizvanovic said that he's also heard rumblings from shareholders that TD could look outside the bank for a successor, which he thinks is possible, but unlikely. He doesn't think the company lacks bench strength, despite a number of leadership changes in the last few years.
Michael Rhodes, who formerly led personal banking in Canada at TD,
Rhodes' departure from TD marked the bank's fifth round of executive musical chairs since early 2021, including leadership roles at the parent company and its subsidiaries.
"Although we are not predicting a changing of the guard tomorrow, we believe CEO succession planning and the banks' senior executive management team bench strength could be focal points for the market in the very near term," wrote the Jefferies analysts.
