The combined net income of Canada’s Big Six banks in Q4 fiscal 2024 increased 21.4% to $14.7 billion compared to Q4 fiscal 2023. Also, in the three months ending October 31, 2024, the provision for credit losses (PCL) rose 23% collectively to $4.4 billion from a year ago.
These giant lenders, except for one, reported year-over-year increases in profits for the full fiscal year. Toronto Dominion Bank (TSX: TD), the country’s second-largest financial institution by market capitalization, saw its net income drop 16.9% to $8.8 billion compared to fiscal 2023. However, net income in Q4 fiscal 2024 rose 26.8% to $3.6 billion from a year ago.
On October 11, 2024, the $144.9 billion lender pled guilty to violating the U.S. Bank Secrecy Act (BSA) and failure to comply with money laundering guidelines. The stock price fell below $80 as a result. TD trades at $86 per share, is up 13.9%-plus year-to-date, and pays a hefty 5.1% dividend yield.
Considering the challenges ahead, should you buy this Big Bank stock today at less than $90? TD last traded above $90 ($90.99 per share) on February 22, 2022.
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The fallout from the scandal
Besides the US$3.1 billion fine by U.S. regulators in 2024, the fallout from the money laundering scandal included sweeping changes in the Board and senior leadership positions. TD announced pay cuts for 41 executives in January and erstwhile Chief Operating Officer Raymond Chun took over as the new CEO in place of Bharat Masrani effective February 1, 2025.
TD suspended its medium-term financial targets of 7% to 10% earnings per share (EPS) growth and 16% return on equity because it might not be feasible, given the current situation. Instead, management will conduct a review of its strategies and provide new targets in the back half of 2025.
In addition to the hefty penalty, the Office of the Comptroller of the Currency imposed an indefinite cap on TD’s U.S. retail banking assets. The Canadian bank cannot continue its growth-by-acquisition strategy as it has done in the last 20 years.
Latest development
On February 10, 2025, TD announced plans to sell its entire stake in Charles Schwab through a registered offering and share repurchase by the U.S. entity. According to Chun, the divestment is part of the strategic review and corporate overhaul. TD will raise around US$14 billion and use US$8 billion for share buybacks.
TD’s path forward is uncertainty, but a new CEO will bring hope for recovery, if not a turnaround. The Bank of America upgraded TD Bank from “neutral” to “buy” last month because it thinks Chun can fix the bank’s anti-money laundering issues. BA analyst Ebrahim Poonawala said the concerns with TD dissipated while confidence increased after a management meeting with Chun.
Approach with caution
Some analysts say TD’s current share price reflects much of the negative factors affecting the bank. While the capital position remains strong and dividend payments are secure, the growth prospects in the U.S. are a major consideration. A wait-and-see approach is best for now because of a potential downside.
