The Toronto-Dominion Bank (TSX:TD) stock is rapidly recovering from its early 2024 bear market.
Near the start of this year, when most bank stocks were rallying, TD Bank was in a downtrend, mainly because of a money laundering scandal it was embroiled in at the time. In 2022, TD Bank tellers in New Jersey were caught laundering money for a drug cartel. In 2023, similar wrongdoing was found at TD branches in New York and Florida. The bank booked $615 in charges related to U.S. investigations into these matters.
Which brings us to today. For the last two months, TD stock has been recovering nicely from its 52-week lows (about $74). It’s at $77.50 today.
When TD was going through its fentanyl-driven scandal, I was buying up shares hand over fist. The analyst consensus on the amount of fines – $2 billion – would make TD among the cheapest North American mega banks if that were the only thing at TD changed compared to last year. So I started buying shares at $78 and continued buying as low as $74.
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The ongoing matter of fines
Basically, if TD’s fines stop at $2 billion, the stock should perform well for me. It will at minimum pay me a high dividend yield (5.3% on my overall position), and it should deliver modest capital gains over the long term.
One issue that keeps me up at night though is the matter of fines exceeding what analysts expect. So far, TD has booked $615 million in fines related to the money laundering investigation. Analysts think said fines will eventually go as high as $2 billion. These sums don’t dent the thesis for investing in TD Bank all that badly.
But what if they go higher? Over periods of years, banks can sometimes pay very large amounts of fines stemming from one single issue. Bank of America once paid out $30 billion over about a decade related to the SMC scandal it and other U.S. banks got embroiled in in the aftermath of the financial crisis. Wells Fargo, too, paid out many billions over a few years because of its cross-selling scandal. Finally, JPMorgan Chase once paid out more than $10 billion in a single fine.
A $10 billion fine to TD Bank, or $30 billion in fines over a decade, would materially weaken the thesis for investing in the stock. While I’m still fairly confident that the fines will ultimately amount to about $2 billion, my certainty on that is not 100%. So those investing in TD ought to consider weighting the stock appropriately in their portfolios. It’s not something you’d “go all in on.”
Why I’m still invested
Despite all of the risks mentioned above, TD Bank stock is the most heavily weighted stock in my portfolio. It’s cheap, it has newly-acquired investment banking assets, its brand is widely recognized, and it’s one of the top Canadian banks in the United States. Plus the 5.3% yielding dividend is nice to receive.
Obviously, the points above do not make TD Bank an appropriate stock for every investor. But for me, it’s worth the investment.
