Departures of top executives raise questions about TD's leadership amid looming $3bn AML settlement
Toronto-Dominion Bank (TD) has allocated a total of US$3bn to cover a global settlement related to criminal and civil investigations into its anti-money laundering (AML) controls in the United States.
This development has intensified discussions about a potential succession plan to replace CEO Bharat Masrani.
Gabriel Dechaine, an analyst at National Bank Financial, highlighted that the ongoing US regulatory issues have heightened succession concerns. “Succession questions have become even more intense because of the bank’s US regulatory issues,” Dechaine noted in a Wednesday report.
Under normal circumstances, the succession process might already be underway, given that Masrani has been at the helm for 10 years and is now 67.
Dechaine also suggested that resolving the financial consequences of the AML probe could pave the way for a successor, stating, “Providing clarity (if not certainty) of the direct financial consequences ‘clears the deck’ for a potential successor.”
TD announced on Wednesday that it is setting aside an additional US$2.6bn for expected fines from the AML investigation, on top of the US$450m it allocated in April.
However, identifying a successor for Masrani may prove challenging.
Several top contenders have left the bank in the wake of the money laundering probes, including Michael Rhodes, who was considered by some as the CEO-in-waiting before he left TD in December to become the CEO of Discover Financial Services.
Similarly, Teri Currie, who was also seen as a potential successor, retired unexpectedly in early 2022. Other departures include Katy Boshart, who became the CEO of Manulife Bank in April, and Tim Hockey, a former candidate to lead TD, who left TD Ameritrade in February 2020.
One internal candidate is Riaz Ahmed, CEO of TD Securities and head of wholesale banking, who previously served as the bank’s CFO. However, at 61 years old, his age may be a factor in considering him as a successor.
Younger potential candidates, such as Leo Salom, are also in the running, but Salom currently holds a critical role as group head of US retail and CEO of TD’s US banking franchise, where stability might be prioritized.
Dechaine suggested in a follow-up note on Thursday that the recent provision for regulatory fines could clear the way for a CEO succession that might include an external candidate.
Despite the uncertainty surrounding succession, Dechaine predicted that news of a pending global settlement of the money-laundering issues could trigger a “relief rally” among investors.
The investigations have weighed heavily on TD for over a year and led to the loss of a significant US acquisition opportunity.
However, Dechaine cautioned that TD still faces challenges. The sale of shares in Charles Schwab Corp. to bolster the bank’s capital will impact earnings and reduce TD’s ownership stake in Schwab from 12.3 percent to 10.1 percent.
Additionally, there remains the possibility of non-financial penalties, such as an asset cap on US operations.
“If growth here is restricted, TD could deliver sub-par earnings growth relative to peers over the next several years,” Dechaine said. He also noted that the bank’s valuation multiple could suffer if regulators impose an asset cap.
Masrani acknowledged the seriousness of TD’s AML deficiencies in New York, New Jersey, and Florida, stating, “We recognize the seriousness of our US AML program deficiencies, and the work required to meet our obligations and responsibilities is of paramount importance to me, our senior leaders, and our boards.”
This statement reflects TD’s commitment to addressing the issues that have led to these money laundering allegations.
