Here is what we think investors should know about TD Bank’s anti-money laundering fiasco.
It seems that Canada’s second-largest bank took a lacking implementation stance on the required checks and balances for money laundering otherwise shortened to AML.
TD Bank was so loose with Anti-Money Laundering implementations that the Canadian regulator Fintrac issued TD a fine of $9.2 million. That link will bring you directly to the FINTRAC website where they make the announcement. It is fairly detailed but we've read the article and other reports and have summed it up for you here.
Of course, $9.2 Million isn't much of a fine to Canada's second largest bank, and the amount of the fines charged to these large banks is another thing to discuss. TD Bank has already paid the fine.
We also want to remind everyone that TD Bank is so large that they can't be on top over every single one of their employees and what they are doing. Also, TD Bank is not the first to be fined by FINTRAC. If you type the name of your favourite bank into your internet search engine followed by "fined by FINTRAC", you will find multiple notifications.
Here is why the stock has taken such a hit.
Depending on the findings of an investigation by U.S. regulators into the bank’s ties to a USD$653-million money-laundering case involving fentanyl and Chinese criminal organizations, TD Bank could be charged with $2 billion USD and most likely will have to rethink growth strategy over the next few years.
TD has been on an acquisition rampage in the U.S.A and is now one of the United States 10 largest banks.
How much did TD’s stock drop?
TD Bank is a staple in many Canadian portfolios, either directly or indirectly via mutual funds and exchange traded funds. As a result, even though the news about the money laundering issue is public and you see the media portray the news as the worst thing to happen to TD, the stock is only down 9.81% Year to date as of May 26, 2024. This is not that big of a decrease. So even through it has dipped, it's really not that bad. It is definitely in buying territory.
In our opinion, TD Bank has a great structure and a core management team. Its products are widely used by many Canadians, and it has a large footprint in the United States. The management team has also said it plans to continue to pay the dividends, currently at 5.28%. The bank also has great margins, which investors love to see of course.
Right now, TD Bank is going through a bit of a storm but it has more than enough funds, resources, and human capital and expertise to get through it. Like many investors who hold TD Bank stock, it's a long-term investment for me. I don't plan to sell anytime soon, but I am planning to increase my holdings by 5%. The ability to purchase a stock that was at $109 within the last 12 months for only $77 is too good of an opportunity to pass up.
I will end this by saying that you still do need to be aware of the situation. We do not know yet what will come of the US investigation. Maybe they will find other things that will lead to another big scandal, who knows. In the short term, there may be some volatility, but in the long term I believe we will be just fine. In the meantime, enjoy the dividends.
