Toronto-Dominion BankTD-T +0.24%increase chief executive officer Bharat Masrani said that the bank has identified the weaknesses in its anti-money laundering procedures, and that the lender is investing heavily in improving those processes.
Investors have been waiting for details on the expected fines or other penalties stemming from probes by regulators and law-enforcement agencies, including the U.S. Department of Justice, that derailed its takeover of Tennessee-based First Horizon Corp. While discussing first-quarter earnings results that topped analyst expectations, Mr. Masrani said that he cannot yet publicly share the nature of the gaps in its anti-money laundering procedures.
“I know there are questions relating to the bank’s investments in our risk and control infrastructure, including in our AML program. We are making comprehensive enhancements. This is a priority for the bank, and we take our responsibility to live up to our high standards,” Mr. Masrani said during a conference call with analysts.
He said that TD has hired hundreds of employees across the company to support its risk and control operations.
“We know what the AML issue is, and we’re making progress is fixing it every day.”
In January, The Globe reported that TD is implementing a companywide action plan to strengthen its anti-money laundering controls and risk management practices, and that it had hired new senior executives to oversee the overhaul.
On Thursday, TD reported first-quarter profit that beat analysts’ estimates as the lender booked record revenue in its capital markets division, offsetting rising provisions for loans that could default.
The bank earned $2.8-billion, or $1.55 per share, in the three months that ended Jan. 31. That compared with $1.58-billion, or $0.82 per share, in the same quarter last year.
Adjusted to exclude certain items, including costs related to the restructuring charges announced last quarter and its acquisition of New York-based investment bank Cowen, TD said it earned $2.00 per share. That topped the $1.89 per share analysts expected, according to data from the London Stock Exchange Group.
The bank booked $213-million in after-tax restructuring charges, adding to the $266-million it posted for the program last quarter. Last year, any of the banks trimmed expenses through measures including job cuts and real estate reductions. TD expects to post savings of about $400-million pre-tax in 2024.
The lender is targeting a 3 per cent reduction in its workforce through initiatives including employee severance and other personnel-related costs and reducing its real estate footprint.
“TD posted earnings that were ahead of expectations on the back of impressive operating leverage (likely aided by the ongoing restructuring charges) and a boost from capital markets,” Jefferies analyst John Aiken said in a note to clients. (Operating leverage is the industry’s term for revenue outpacing expenses.)
On Thursday, CIBC and Toronto-Dominion Bank were the final major Canadian banks to report earnings for the fiscal first quarter. The rest of the Big Six banks reported earlier this week, with Bank of Nova Scotia, Royal Bank of Canada and National Bank of Canada beating analyst expectations, while Bank of Montreal missed estimates.
In the quarter, TD set aside $1-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $67-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses. In the same quarter last year, TD had set aside $690-million in provisions.
Total revenue rose 12 per cent in the quarter to $13.7-billion as expenses decreased 1 per cent to $8-billion.
Canadian personal and commercial banking profit was $1.79-billion, up 3 per cent from a year earlier, as revenue growth offset by higher expenses and provisions.
Profit from the bank’s U.S. arm fell 43 per cent to $670-million as a decrease in the earnings contributed from TD’s investment in Charles Schwab weighed on results.
The wealth management and insurance division’s profit was flat at $555-million of profit as higher insurance service expenses offset a rise in revenue.
Capital markets profit fell 38 per cent to $205-million on higher expenses related to the integration of TD’s Cowen acquisition. But revenue jumped 32 per cent to $1.78-billion on higher activity through Cowen, as well as a boost in equity commissions, lending revenue from syndicated and leveraged finance, trading and underwriting fees.
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