Analysts Warn That Long-Term Impact of TD Money Laundering Fines on Bank’s Stock Could Be Heavy

Analysts warn that the money laundering penalties imposed on Toronto-Dominion Bank by U.S. regulators could have a long-term impact on the bank’s stock price.

Following the agreement to pay fines of about US$3.09 billion and pleading guilty to charges related to anti-money laundering program deficiencies, TD’s share price dropped more than five percent on Thursday. It further declined by over four percent on Friday to approximately $78.39 on the Toronto Stock Exchange.

The penalties make TD the largest bank in U.S. history to admit to Bank Secrecy Act program failures and the first to confess to conspiracy to commit money laundering, according to U.S. Attorney General Merrick Garland.

Despite the financial penalties, U.S. regulators have also imposed non-monetary sanctions, such as an asset cap that restricts TD’s growth potential in the U.S.

National Bank of Canada analyst Gabriel Dechaine noted that the asset cap imposed on TD’s U.S. subsidiaries could have significant financial implications for the company.

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Dechaine highlighted that TD’s U.S. operations contribute significantly to its earnings, and the bank plans to reduce its U.S. asset base to comply with the asset cap.

Jefferies cautioned that increased expenses and restructuring to meet regulatory requirements could impact TD’s U.S. retail segment earnings in 2025.

The bank may need several years to achieve peer average growth, according to Jefferies.

It is anticipated that TD will intensify efforts to win business in other segments to compensate for the restrictions in the U.S., potentially leading to competitive responses from other Canadian banks.

CIBC analyst Paul Holden stated that the money-laundering settlement and asset cap are more severe than expected for TD, prompting a reduction in the stock’s price target.

However, Holden believes that the current discount in TD’s stock price is excessive given that the U.S. asset cap limits growth potential but does not eliminate it.

TD is the second-largest Canadian bank by market capitalization and admitted in its plea agreement to facilitating over US$670 million in money transfers through TD Bank accounts for money laundering networks over six years.