Toronto-Dominion Bank, Canada’s second-largest lender, has announced an initial provision of $450 million in relation to ongoing US investigations into its anti-money laundering (AML) measures.

The bank released a statement after the close of market trading, indicating that this figure is part of broader discussions aimed at resolving these regulatory issues. However, it stressed that the total cost of potential fines is “unknown and not reliably estimable at this time.”

Negotiations with US Regulators – Toronto-Dominion Bank Set Funds Aside 

The Toronto-based bank is currently in negotiations with three US regulatory bodies as well as the Department of Justice. The disclosed $450 million is specifically tied to discussions with one of these regulators, suggesting further financial implications could arise as talks with other regulators progress.

This follows on from an investigation by Canada’s financial watchdog FinTRAC who are set to hand the bank a significant fine likely to exceed $10 million.

Analyst Insights

Financial analysts have speculated that the eventual fines could range from $500 million to over $1 billion. John Aiken, an analyst at Jefferies Financial, commented, “We note this is simply a provision and not a definitive amount, with TD hedging expectations in its press release.”

Aiken also highlighted that the bank’s remedial actions have not yet commenced in earnest, as similar past situations have taken anywhere from three to ten years to resolve under consent orders. However, he acknowledged TD’s proactive efforts to potentially shorten this timeline.

Addressing AML Shortcomings

Toronto-Dominion acknowledged the inadequacies in its AML program which failed to effectively monitor and report suspicious activities.

The bank confirmed that it is actively working to rectify these deficiencies. “TD is a strong institution with the capital, liquidity, and capacity to fund the critical effort currently underway to strengthen its AML program, invest in the business, and continue to serve its customers and clients with excellence,” the bank stated.

Impact on Business Operations and Market Performance

The revelations follow the collapse of Toronto-Dominion’s planned acquisition of Memphis-based First Horizon Corp. nearly a year ago, due to delays in regulatory approvals. Despite previously informing investors of identified issues and ongoing remedial efforts, details remained scant, contributing to months of stock price declines amid investor concerns about potential major US operational restrictions and hefty fines.

Nevertheless, the bank’s shares have shown signs of recovery in recent weeks, though they are still down 4.6% for the year, ranking it fifth among Canada’s six largest banks in terms of stock performance.