I recently submitted a question on TD, expressing concerns about possible lingering ill effects due to the money laundering episode. In a nutshell, 5Is position was that there was little concern on their part about TDs future and that most banks are subjected to the same money laundering threats. Just received this presser:
"Toronto-Dominion Bank's anti-money laundering program will take longer to cure and could have a greater and more damaging impact on the bank's franchise and earnings power. After confirming TD Bank's AA credit rating in May, additional shortcomings in the program, controls and operational risk-management practices have surfaced. Morningstar expects additional investment in risk and control infrastructure and expected monetary and non-monetary penalties, as well as the ongoing attention of leadership on remediation efforts, will act as earnings headwinds. There also is a risk regulators conducting investigations will reveal other related and/or unrelated issues, it says."
Still little concern on your part?
I did sell a third of my TD holdings after receiving your input. It was my largest holding.
Carl
The problem with the unknown is that it is not known. We did not want to imply that TD's issues were minor, but moreso that the stock decline likely reflects much of the risk already. Morningstar and other agencies, such as bond rating agencies, tend to be a bit 'reactive' and need to by design be conservative. TD could indeed face a long road ahead. The uncertainty is the problem right now. Once a fine has been levied, and any curtailments to its business opportunity in the US, investors will be able to model its potential better. The bank certainly could be 'made an example of' and thus the fine could be large. But, TD of course will throw tons of resources towards 'fixing' its issues. There remain concerns. But if we look at current consensus, 16 analysts on average still expect EPS growth next year (in the range of 5% to 7%).