Do you believe that this class action exposure, as well as the potential for additional fines from Canadian authorities, to be a credible risk that may not be reflected in the current share price? I am concerned that this may be a drag on the stock for a lengthy period and am contemplating swapping my TD holdings for other Canadian banks. Your thoughts?
While there are numerous lawsuits, we do not see any of them being material to the company. Most will be impossible to prove and these types of suits are common place after a stock drops, or is officially fined. They will take years to play out, if they are not dropped, which we think is more likely. Other than the banks' penalty of restricting asset growth in the US, we think the issue is largely now behind it. Investors stressed over the uncertainty for more than a year, and it was reflected in the share valuation. The stock is now up 6% on the year, well ahead of the general market. We are comfortable with TD stock. RY is 'safer' and larger, but comes at a trade-off of a higher valuation and lower yield. We think all investors should be comfortable with what they own, and would not object to a switch if one was worried, but we would not, today, consider TD to be a SELL.