TD Bank Grapples With Ongoing AML Issues, Expects Compliance Costs to Linger

Toronto-Dominion Bank is racing to overhaul its troubled anti-money laundering controls in the United States, but the costly remediation effort could drag into 2025, executives warned during the bank's latest earnings call.

"Our intention is to fix all our issues as soon as we can," TD Chief Executive Bharat Masrani told analysts Thursday. "We're trying to get this done as quickly as we can. But can it go into '25? Yeah, perhaps it might."

TD disclosed a $450 million restructuring charge for the fiscal second quarter to cover expected penalties from U.S. regulators investigating deficiencies in the bank's anti-money laundering program. The issues drew scrutiny after allegations that criminals exploited weaknesses to launder at least $653 million tied to illegal fentanyl sales. Masrani declined to predict when the probes by the Justice Department and other agencies might conclude, citing ongoing conversations with regulators.

So far, TD has spent around $366 million hiring staff, upgrading technology and providing enterprise-wide training as part of a "comprehensive overhaul" of its U.S. AML compliance, executives said. The bank anticipates shelling out even more.

"We are making all the right investments and hiring the right professionals to get us there," Masrani vowed.

Despite the troubles, TD insists the AML lapses are confined to its U.S. operations and do not reflect systemic issues across the organization. Chief Risk Officer Ajai Bambawale acknowledged "procedural weaknesses" that allegedly allowed "bad actors to exploit us," along with ethical shortcomings by some employees. Prosecutors claim certain TD staffers accepted bribes as part of the money laundering scheme.

Bambawale expressed disappointment "that some of our colleagues didn't follow our code of ethics," but maintained the problems were limited to TD's American AML controls.

"The main issue we're dealing with is the U.S. AML program," he said.

As TD works to reform its compliance and satisfy regulators, some analysts questioned whether the bank's U.S. growth ambitions could stall. Executives sought to allay those concerns.

"I'm not making the claim that we cannot grow the stores," said Leo Salom, who leads TD's U.S. operations. However, he added, "I don't want to prejudice any of those conversations at this point" with regulators.

Masrani stressed that the AML overhaul would not force spending cuts elsewhere to subsidize the project. For the quarter, TD reported net income fell 22% to $2.6 billion, while revenue rose 11% to $13.8 billion.

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