The Big Six Banks have been struggling lately, but perhaps none so much as Toronto Dominion Bank (TSX:TD). TD stock has fallen 14% since its 52-week highs, and even more since all-time highs. But the biggest question, of course, is whether the bank stock is now a deal on the TSX today.
The recent drop
Shares of TD stock fell further and further but seemed to recover at the beginning of November. This occurred as the market responded to better news on the improvement of interest rates and inflation. Yet that all came crashing down when the bank reported its recent earnings report.
The company reported lower fourth-quarter profit that fell below analyst estimates. TD earned $2.9 billion in the quarter, down 57% compared to 2022 levels. The bank also had $266 million in restructuring charges, after taxes, from jobs cuts and real estate sales.
With the 3% workforce reduction, TD joined other banks that also saw a need to reduce costs. But perhaps more so for TD stock, which has a massive workforce spanning North America. And there could be more bad news to come, as the bank put aside $878 million in provisions for credit losses. This was actually lower than anticipated, but there is still a lot of economic uncertainty on both sides of the border for TD stock.
There are numerous issues affecting TD stock in at the very least the next year owing to its investments in the United States. The company was forced to terminate its acquisition of First Horizon bank after the U.S. federal government ended foreign acquisitions of large companies. This forced the bank into wondering where growth would come from in the future.
But there are even more issues to come. TD is also waiting to hear about penalties and even fines from the anti-money-laundering probes by law enforcement agencies. Other banks have already been fined millions, and TD stock likely won’t be an exception. Some estimate the bank will incur up to US$1 billion in penalties.
All savings then from the restructuring and sales will be put right back into the business for “risk and control” management, as stated. So investors will likely see a huge increase in costs for the next year.
Yet management isn’t struggling
All this, and then there was the huge issue that arose when it was found that Canadian banks were giving out large bonuses to C-suite employees. In the case of TD, the bank put aside $4.1 billion for incentives, which was a massive 23% increase from the year before. And that’s despite seeing its capital markets fall 42% year over year, from higher costs and a takeover of Cowen investment bank.
Management stated they believe compensation was fair to remain competitive, and focused on performance. Yet it comes at a time when TD needs to cut back to boost its stock. The controversy arose as Chief Executive Officer Michael Rhodes departed the bank.
All this to say that TD stock is looking quite volatile at the moment. Shares are down, growth doesn’t look strong, and more costs are expected. And with penalties coming down the line, it could get worse before it gets better.