Here’s what I know about TD Bank’s anti-money laundering troubles so far. Canada’s second-largest bank was loose in implementing the required checks and balances. It was so loose that Canadian regulator Fintrac issued TD a fine of $9.2 million—not much of a penalty for one of North America’s largest financial institutions. TD has already paid this fine.
However, depending on the results of an ongoing investigation by U.S. regulators as well as the Department of Justice into the bank’s ties to a USD$653-million money-laundering case involving fentanyl and Chinese criminal organizations, it’s been said that TD could be on the hook for up to USD$2 billion in fines and potentially be forced to curtail its growth strategy in U.S.
Over the past decade, TD has been on an acquisition spree south of the border, where it has grown into one of America’s 10 largest banks.
How much did TD’s stock drop?
Given the bank’s size and longtime standing as a blue-chip investment, TD is a staple in many Canadian portfolios, either directly or indirectly via mutual funds and exchange traded funds (ETFs). As a result, even though TD Bank CEO Bharat Masrani has acknowledged the bank fell short in its responsibilities, the news has not had much of an impact on the stock’s value. It dipped to a 52-week low of just under $74 a share before rebounding to about $77. However, the stock was already slipping before the money-laundering charges.
What the situation with TD could mean for Canadian investors
When this situation with TD emerged, I started thinking about Nortel Networks’ crash and demise. In the 1990s, early 2000s and up until the accounting scandal that broke the telecom giant, it, too, was a safe investment and widely held. However, unlike Nortel, TD is not going anywhere. That’s because it has a sound structure, strong business model and good margins. It continues to pay a dividend yield of 5.3%, down just slightly from 5.5%.
Right now, TD is weathering this storm well. Though it’s hard to know what will happen once the governing bodies in the U.S. issue their judgments, for a contrarian investor like me, I’m looking at TD as a long-term investment with a potential return to its $109 stock price of October 2022.
While I have already purchased TD stock, it is a buyer-beware situation because we still don’t know what the penalties will be. I’m telling individual investors that it is going to be a bumpy ride in the short term. How bumpy will depend on the outcome of the investigation. Over the long term, I think it’s going to be just fine. It’s not something I’m buying expecting it to rebound quickly (although that may happen and if it does, fantastic, I’ll take that win).
Otherwise, I am choosing to own it because it pays a healthy dividend, because it’s the second-largest bank in the country and because it’s a good quality name that I can buy at a cheap price today.