TD Bank Comfortable With Schwab Stake After Selling Down Its Investment

By Robb M. Stewart

Toronto-Dominion Bank isn't looking to cut its stake in Charles Schwab any further after selling $2.5 billion of the brokerage and money-management firm's shares to bolster its capital reserves after setting aside more money as it seeks to settle investigations into failures in its anti-money laundering program

Bharat Masrani, who has been with the Canadian lender for more than three decades and took over as chief executive in 2014, said Thursday the intention currently is to not take the stake in Schwab below the 10.1% it now stands at.

Masrani told analysts during a conference call following the bank's financial results for the latest quarter the sale of 40.5 million Schwab shares on Wednesday, which cut the stake from 12.3%, was in line with TD's long-standing efforts to remain conservatively capitalized.

It is prudent to have sufficient capital given continued uncertainty in markets, he said, adding TD was comfortable holding the interest in Schwab.

TD took a further $2.6 billion provision to cover fines it expects in the U.S. to settle civil and criminal investigations into failings in its anti-money laundering program by the Justice Department, prudential regulators and the Financial Crimes Enforcement Network. It comes on top of an initial $450 million provision taken a quarter earlier for the anticipated fines.

The provision ate into capital for the latest quarter, and TD's common equity tier 1 ratio that compares capital against risk-weighted assets fell to 12.8% at the end of July from 13.4% the quarter before and 15.2% at the same point last year. Canada's financial regulator expects the country's six dominant banks to have a CET 1 ratio, a key measure of resilience in a market downturn, of at least 11.5%.

TD forecast a further 0.35 percentage point hit to the ratio in the fourth quarter from the increase in operational risk, but an increase of 0.54 point advance from the same of Schwab shares.

The bank said the provisions taken represent its best estimate of the financial cost expected to put the anti-money laundering problems behind it. It expects to finalize a resolution by the end of 2024.

TD is also bracing for possible non-monetary costs for its anti-money laundering program's weaknesses, including possible compliance and other requirements, though Masrani said he wouldn't speculate on what a deal with regulators might entail and declined to comment when asked if it might involve an asset cap on operations in the U.S.

The bank has been named as a defendant in four overlapping proposed class-action lawsuits on behalf of shareholders alleging that its disclosure on its U.S. anti-money laundering program has been misleading. TD said none of the proposed actions have been certified or granted leave to proceed by a court, and losses or damages cannot be estimated at this time. "There are many cases, and will see how each one will turn out," Masrani said.

TD acquired a roughly 13.5% interest in Schwab in late 2020 as part of Schwab's acquisition of TD Ameritrade. The bank in 2022 sold non-voting shares, reduced its stake to about 12%.

In connection with the latest sale of shares, TD said it agreed not to sale any further stock for a period of 45 days.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 22, 2024 10:45 ET (14:45 GMT)

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