(Bloomberg) — A veteran Canadian bank analyst says Toronto-Dominion Bank’s role in an alleged money-laundering scheme has made the “worst-case scenario” more likely — a huge fine and strict limits on the lender’s US growth.
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The US Department of Justice is investigating the bank over its ties to a $653 million drug money-laundering case in New York and New Jersey, a person familiar with the matter told Bloomberg last week. That’s on top of another case in which one of the bank’s New Jersey branch employees was charged with accepting bribes to facilitate the laundering of drug money.
“With the bank allegedly a focal institution in a drug money-laundering scheme, the worst-case scenario has become more likely with TD potentially entering a lost decade,” Jefferies analyst John Aiken said in note to clients Monday. “Growth in the US will likely be constrained and the timeline for a fix is extended by several years.”|
Read More: TD Probe Tied to Laundering Drug Money, Journal Says
The bank announced an initial $450 million provision for regulatory penalties last week and said there’s more to come. The “simple math” implies Canada’s second-largest bank will have to pay $2 billion, Aiken said.
Toronto-Dominion has lost more than C$10 billion ($7.3 billion) in market capitalization after the Wall Street Journal reported the bank’s ties to the drug-money case on Thursday. Friday’s 5.8% drop in the share price was the worst since March 2020.
Keefe Bruyette & Woods analyst Mike Rizvanovic cut his price target to C$88 from C$92, adding that while last week’s selloff appeared to be overdone, the stock will take time to recover.
Bank of Nova Scotia analyst Meny Grauman noted that there’s likely too much bad news being priced into shares.
“The overhang on the stock is likely to remain a reality for the foreseeable future, but we believe that last week’s selloff simply went too far,” Grauman said in a note. “This business may very well be growth constrained for some time, but based on what we know there is simply no basis to believe that TD’s US earnings power has totally evaporated.”
Read More: TD Risks Profit Hit in Money-Laundering Probe, Analysts Say
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