Toronto-Dominion Bank (TD) (TSE:TD), Canada’s second-largest financial institution with a significant retail banking business in the United States, has had a difficult year. From a business perspective, the company recently entered into an anti-money laundering (AML) settlement with the U.S. Department of Justice (DOJ) and has had poor results.
For investors, TD is the only major Canadian bank whose stock has suffered losses this year, and that’s not insignificant. Shares of TD (listed on the NYSE) are down about 17% so far in 2024, while the next worst-performing Canadian bank stock is Bank of Montreal (BMO), which is up a nice 12% YTD books.
However, amid the weakness comes long-term opportunities, and this is a rare occasion where a major financial institution can be bought for a price-to-earnings ratio of less than 10x. I think it’s worth it for patient investors to consider TD at this point. As a result, I have a buy rating on TD stock.
TD has 4 major divisions, namely:
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Canadian banks
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American retail banking
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Asset management
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Wholesale banking
TD’s entry into the United States was stimulated by the 2005 acquisition of Vermont-based BankNorth. It then strengthened its presence in the US by acquiring another East Coast institution, Commerce Bank, in 2007. By the time I visited New York City for work in 2013, TD’s green logo was everywhere in Manhattan.
Interestingly, however, the US retail banking segment has not been the main growth driver for TD in recent years, accounting for about a third of total adjusted net profit in the third quarter of 2024. The Canadian banking operations continue to form the backbone of the company. which is a good thing, considering TD’s recent troubles south of the border. Furthermore, the Wealth Management and Wholesale Banking divisions tend to have less predictable results, and the IPO market in particular has been relatively poor recently.
It’s important to note that TD also owns a ~10% stake in shares of Charles Schwab (SCHW), whose shares have rebounded by ~30% in recent months.
It’s always a challenge to buy a stock on bad news, but I’ve taken a bullish stance on TD stock after the recent regulatory woes in the United States. The company was accused by the DOJ of violating anti-money laundering regulations by implementing weak controls and oversight of cash movements. It was alleged that at least three money laundering networks were able to transfer more than $650 billion in funds through TD accounts.