Canada’s banking sector is known globally as a bedrock of stability. The Big Banks, in particular, stand tall to this day despite economic downturns and financial crises. However, Toronto-Dominion Bank (TSX:TD) lost favour with investors last year. The country’s second-largest financial institution pleaded guilty to violating the U.S. Bank Secrecy Act and paid a substantial fine of US$3 billion.
Fast-forward to 2025, and the $166.6 billion bank looks stronger from the money laundering-related case. As of June 11, 2025, TD outperforms its Big Six peers as well as the broad market. The share price is $95.98, with a commanding year-to-date gain of plus-28.8% and a corresponding dividend yield of 4.4%.
What is the reason for the big comeback? Has TD regained investors’ confidence? Should you buy this large-cap stock now?
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Strong quarterly results
TD never lost its handle on profitability despite a tarnished reputation in the financial markets. In Q2 fiscal 2025, net income climbed 334% to $11.1 billion compared to Q2 fiscal 2024. The Wholesale Banking segment reported a record $419 million in net income, a 16% jump compared to the same quarter last year.
In the first half of the same fiscal year, the reported net income was $13.9 billion, a 158.3% increase from a year ago. Interestingly, TD’s U.S. Retail Bank demonstrated resilience and delivered its sixth quarter of consumer deposit growth and double-digit growth.
Raymond Chun, TD Bank Group’s new President and CEO, said, “TD delivered strong results this quarter, with robust trading and fee income in our markets-driven businesses as well as deposit and loan growth in Canadian Personal and Commercial Banking.” “We are well-positioned as we enter the second half of the year,” he added.
Asset cap restrictions
U.S. regulators imposed a cap on TD’s US retail banking assets. The US$434 billion asset cap forms part of the penalty agreement with the Office of the Comptroller of the Currency (OCC). TD must downsize and comply with specific remedial actions before pursuing growth initiatives. The probationary period is five years.
On February 10, 2025, TD announced the sale of its entire 10.1% stake in financial services firm Charles Schwab. Chun said, “As part of our strategic review, we have been evaluating capital allocation and have made the decision to exit our Schwab investment.”
TD intends to use a portion of the US$5.6 billion proceeds for share buybacks. The rest will be invested in businesses to boost performance and accelerate organic growth plans. Moreover, the private transaction provides the Canadian bank with a significant capital boost and liquidity flexibility. TD also realized a significant return on investment.
Surprise surge
Several factors contributed to TD regaining investors’ confidence. First, the core Canadian personal and commercial banking segment delivered better-than-expected but solid revenue growth. Second, there is consistent progress on the Anti-Money Laundering (AML) remediation, according to Chun.
Third, the broader positive sentiment in the financial sector, aided by lower interest rates, is another factor for the stock’s surprise surge. Last, TD remains well-capitalized and has a sufficient buffer (14.3% CET1 ratio) against potential economic downturns.
You can safely say that this Big Bank stock is back on investors’ radars in 2025, primarily for income-seeking investors.
