TD Bank’s US growth stalled by $4.5 billion AML settlement: WSJ – Capital Brief

The news: Toronto-Dominion Bank will plead guilty to criminal charges and pay US$3 billion ($4.46 billion) in fines to settle allegations that it failed to monitor money laundering by drug cartels in the US, reported The Wall Street Journal based on unnamed sources.

The lender will also face restrictions on its retail expansion in the US, the newspaper said, with an asset ceiling imposed by the Office of the Comptroller of the currency (OCC) as part of the settlement, which is expected to be announced soon.

The context: The settlement comes after authorities launched an investigation into TD’s internal controls when agents discovered that a Chinese criminal group had funneled millions of dollars from fentanyl sales through TD branches in New York and New Jersey and bribed bank employees, according to the Journal.

TD has since spent millions on compliance improvements, earmarked $3 billion for fines, laid off staff and appointed Raymond Chun, the head of Canadian Personal Banking, as its new CEO, distancing him from the money laundering scandal.

CEO Bharat Masrani, who oversaw efforts to resolve the problems, will step down later this year. Last year, concerns about TD’s anti-money laundering controls blocked TD’s planned $13.4 billion acquisition of First Horizon, the largest U.S. bank exit ever.

In addition to limiting TD Bank’s retail growth, the asset cap is a key regulatory measure that limits the bank’s overall expansion in the U.S. market, essentially freezing its ability to grow until compliance issues are resolved and addressed the legal requirements are met.

These types of restrictions mirror actions taken against other major banks, such as Wells Fargo, which faced similar caps due to regulatory failures.

The numbers: The $3 billion in fines will be split between U.S. regulators, including the Department of Justice and the Financial Crimes Enforcement Network (FinCEN), with the Department of Justice receiving $1.8 billion.

TD’s US unit is expected to plead guilty and operate under the supervision of independent regulators for four years.

Shares of TD fell as much as 6.59% on the news, with analysts seeing the restriction on US retail growth as the biggest hit, as had been expected and the company had already made provisions of a similar size.

After building one of the largest U.S. retail banks through acquisitions like Banknorth, Commerce Bank and others, TD now faces stalled growth and a prolonged decline in profits.