TD Bank’s tough year just got tougher

The challenges continue to mount for TD Bank (TD), making an already difficult year for the Canadian banking giant even more difficult.

The Toronto-based bank reported a net loss of $133 million in the third quarter on Thursday, largely in light of the billions the bank set aside to pay expected fines stemming from an ongoing U.S. investigation into its anti-money laundering practices.

The bank said in a separate filing Wednesday that it had set aside an additional $2.6 billion to absorb penalties expected from the investigation, led by the Justice Department, on top of the additional $450 million it set aside in April.

To raise funds for these penalties, TD also sold 40.5 million shares it held in fund manager Charles Schwab (SCHW), reducing its total stake from 12.3% to 10.1%.

TD shares fell 4% Thursday morning. They have lost more than 10% since the start of the year despite a broader gain in other financial stocks. Schwab shares were also down 1% in early morning trading.

“While we are not through the tunnel yet, we can see the light at the end of this journey,” TD Bank CEO Bharat Masrani told analysts Thursday. “Our remediation program is well underway.”

This week’s new disclosure comes after a year of increasing turbulence for TD, which is the second-largest Canadian-based bank and has a U.S. operation that ranks it as the 10th-largest bank in the United States.

It was on track to become an even bigger player in the United States, fueled by a series of acquisitions that culminated in the announcement in 2022 of the purchase of Tennessee-based regional bank First Horizon (FHN) for $13.4 billion.

But that plan fell apart in May 2023, with both sides walking away, costing TD $306 million in termination fees and a separate $199 million loss. At the time, TD attributed the deal’s failure to a lack of clarity about when the pact could get regulatory approval.

Several months later, the situation escalated when TD disclosed law enforcement inquiries about its compliance with anti-money laundering rules, including a Justice Department investigation, and said it expected sanctions as a result of the probe.

This year, the Wall Street Journal reported that the Justice Department’s investigation into TD’s controls focused on how Chinese criminal groups and drug traffickers used the Canadian bank to launder money linked to fentanyl sales in the United States.

“We recognize the seriousness of the deficiencies in our U.S. anti-money laundering program and the work required to meet our obligations and responsibilities is of paramount importance,” CEO Masrani added in a press release.

The story continues

Leo Salom, head of U.S. retail banking at TD, told analysts Thursday that the bank has already hired “more than 500 colleagues” from other major banks, regulators and law enforcement agencies to improve its anti-money laundering strategy.