(Bloomberg) — Toronto-Dominion Bank missed estimates on the weak performance of the lender’s U.S. banking business and said it was suspending growth prospects amid a reassessment of business priorities in the wake of a historic money laundering settlement with the American authorities.
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Canada’s No. 2 lender earned C$1.72 per share on an adjusted basis in the fiscal fourth quarter, according to a statement Thursday, missing the average estimate of C$1.83 from analysts in a Bloomberg survey.
Net profit from the U.S. retail unit was C$863 million ($614 million) for the three months through October, down 32% and less than analysts expected, in what the bank called a “challenging quarter” for the company. In the company’s capital markets division, adjusted net income was C$299 million, missing the C$379 million average of analyst estimates.
Toronto-Dominion “is currently conducting a strategic review of organic opportunities and priorities, productivity and efficiency initiatives and capital allocation alternatives,” the bank said in the statement. During the review, the lender suspends medium-term financial targets for earnings growth, return on equity and operating leverage.
Provisions for credit losses totaled C$1.11 billion, in line with analyst forecasts.
The bank has been operating under the scrutiny of sweeping U.S. investigations for more than a year and finally resolved those cases in October after pleading guilty to failing to prevent money laundering by drug cartels and other criminals. The country also agreed to pay nearly $3.1 billion in fines and other penalties and faces a cap on its U.S. assets.
Just weeks before that resolution, Toronto-Dominion announced plans for the departure of CEO Bharat Masrani next April. He will be replaced by Raymond Chun, who managed the bank’s operations for thirty years.
“We believe Mr. Chun needs to restore morale in addition to revamping the bank’s strategy,” RBC Capital Markets analyst Darko Mihelic wrote in a report last month.
With the U.S. asset cap in place indefinitely until lifted by U.S. banking regulators, Toronto-Dominion shares are trading at a steep valuation discount to their peers – something that is likely to continue for the foreseeable future, it said Mihelic.
Toronto-Dominion last month pre-disclosed higher-than-normal catastrophe loss claims in its insurance business and said it expects the amount to total C$388 million after reinsurance and before taxes in the quarter. The bank missed analysts’ estimates of adjusted earnings in the fiscal third quarter, largely due to a surge in insurance claims due to extreme weather and wildfires.
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