TD Bank Stock Faces Challenge From U.S. Senate!

Toronto-Dominion Bank’s (TSX:TD)(NYSE:TD) latest deal is being blocked by the U.S. Senate.

| More on:
You Should Know This

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is in the middle of closing one of its biggest M&A deals ever. In a deal valued at $13.4 billion, it will acquire 100% of First Horizon National (NYSE:FHN), a bank holding company in the southeastern United States. The deal will make TD the sixth-largest bank in America. However, it has a major hurdle to overcome first: the U.S. Senate.

Last week, a group of U.S. senators wrote the U.S. Office of the Comptroller of the Currency (OCC) asking them to reject TD’s deal. Claiming that TD was guilty of “abusive practices” similar to Wells Fargo in the past, the group wanted the deal put on hold until TD was “held accountable.” In the past, Wells was found to have upsold customers overdraft accounts without their permission — the senators are saying that TD did similar things. It’s serious sounding stuff. But will it actually end TD’s First Horizon deal?

Senator Elizabeth Warren attempts to block acquisition

One of the leaders of the attempt to block TD’s acquisition is Elizabeth Warren. A progressive senator from Massachusetts, she is known for her hardline stance on big business. In her letter, which was co-signed by several other senators, she wrote: “The OCC should closely examine any ongoing wrongdoing and block any merger until TD Bank is held responsible for its abusive practices.” She also said that the OCC found evidence of misconduct by TD Bank in the past but didn’t act on it. It was not clear at the time of writing whether the OCC intended to follow Warren’s recommended steps.

Potential costs of a delay

A delay in the First Horizon deal would be costly to TD Bank. Most obviously, it would postpone the addition of FHN’s earnings to TD’s own financial statements. More directly, it would cause the price of the deal to increase by $0.65 per share for each year that it fails to close. That could be a major problem. TD’s offer of $25 per FHN share was considered high to begin with. If the deal is delayed long term and takes years to close, the valuation could get even richer.

Foolish takeaway

TD Bank is facing one last hurdle on its path to becoming the sixth-biggest bank in the United States. It has already gained shareholder approval to go forward; now it just needs regulators’ blessing. Unfortunately, that blessing may have become harder to obtain. U.S. senators are a powerful group, and several of them are opposing the TD-FHN deal. There has been no indication yet that the U.S. OCC intends to act on their advice, but the risk of the deal not closing has increased.

What does that mean for TD Bank stock?

Potentially, that earnings for next year will be a little lower than we would have hoped. The FHN deal, were it to close, would be immediately accretive to TD’s earnings. If it gets delayed, then we’ll have to wait for the value to be delivered to shareholders. Most likely, TD’s acquisition of FHN will close sooner or later. But we may have to wait longer on closing than we would have hoped.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Andrew Button has positions in The Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned.

More on Bank Stocks

You Should Know This
Bank Stocks

75-Basis-Point Rate Hike? Here’s What it Means for Stocks

Aggressive rate increases dampen investors’ sentiment and send share prices tumbling, because the hikes can impact corporate earnings or profits.

Read more »

question marks written reminders tickets
Bank Stocks

Is TD Bank (TSX:TD) or Royal Bank (TSX:RY) Stock a Buy?

Canadian banks appear oversold. Is this the right time to buy TD or Royal Bank stock?

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Bank Stocks

2 Top TSX Financial Stocks to Buy for a Retirement Fund During the Market Correction

These top TSX financial stocks now look oversold for a self-directed TFSA or RRSP portfolio.

Read more »

Growth from coins
Dividend Stocks

Dividends Aren’t Guaranteed, Yet 3 TSX Stocks Keep Raising Payouts

No company will guarantee dividend payments, but three TSX Dividend Aristocrats will not break their dividend-growth streaks.

Read more »

Technology
Bank Stocks

Should You Buy TD Bank (TSX:TD) Stock Now?

TD stock looks oversold. Is this the right time to buy?

Read more »

Bank Stocks

Passive Income: Buy Bank of Nova Scotia (TSX:BNS) Now

Looking to buy a big bank stock? Investors should look to buy Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) for income and…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

2 Big Canadian Bank Stocks With Great Value Today!

The big Canadian bank stocks reported their quarterly earnings recently. Here are a couple of bank stocks that provide great…

Read more »

edit Person using calculator next to charts and graphs
Bank Stocks

Should You Buy Bank of Nova Scotia (TSX:BNS) or TD Bank (TSX:TD) Stock Now?

Banks now look like attractive value stocks to buy for a TFSA or RRSP portfolio.

Read more »