TD Mulling Fate of Schwab Stake in Review, Incoming CEO Says

(Bloomberg) — Toronto-Dominion Bank will consider the fate of its 10.1% stake in Charles Schwab Corp. as part of a strategic review stemming from the Canadian bank’s US money-laundering scandal, incoming Chief Executive Officer Raymond Chun said. 

Chun, who is chief operating officer and will take over as CEO from Bharat Masrani in April, said Tuesday he is weighing several options for the lender, which faces regulatory limits on growing its US retail-banking operations. The bank suspended its medium-term financial targets and announced the review of company strategy and spending in December.   

“If you think about the Schwab investment, that is part of the capital-allocation review that we are doing as part of the strategic review,” Chun said, speaking in Toronto at RBC Capital Markets’ Canadian bank CEO conference. Toronto-Dominion has said Chun will provide updates on quarterly calls and that it will hold an investor day in the second half of this year.

Chun said Toronto-Dominion’s ownership of Schwab shares is separate from its agreement with the firm to make sweep-deposit accounts available to Schwab clients. With sweep programs, uninvested cash in brokerage accounts is automatically transferred into higher-interest accounts.

“Regardless of what we decide to do with the Schwab investment, the deposit agreement would continue on a go-forward basis,” he said. 

Toronto-Dominion sold 40.5 million Schwab shares in August, trimming its previous 12.3% stake to raise about $2.5 billion to help cover the cost of fines in a series of US anti-money-laundering investigations. In October, it formalized a global settlement with the US Department of Justice and bank regulators and agreed to pay almost $3.1 billion in total. 

Canada’s second-biggest bank acquired its ownership stake in 2020 as part of a transaction to sell its interest in online brokerage TD Ameritrade Holding Corp. to Schwab.

“We are 100% committed to our franchise in the US,” Chun said when asked about the prospect of Toronto-Dominion exiting its American business, noting that with 10 million clients, it’s one of the 10 largest banks in the country.   

To comply with the asset cap, Toronto-Dominion is restructuring its US balance sheet, he said, which includes exiting certain loan portfolios and repositioning its bond holdings. He expects that process to be complete by the end of fiscal 2025.

The bank is also making significant investments in hiring and new processes to improve its anti-money-laundering controls after it failed to prevent money laundering by drug cartels and other criminals at several of its US branches. 

Remediating its anti-money-laundering program is the “No. 1 priority for the organization. It is my No. 1 priority as the incoming CEO,” Chun said, adding that US authorities recently approved the appointment of a monitor that Toronto-Dominion proposed to oversee those efforts. “This is a multiyear process.” 

Toronto-Dominion’s stock was battered in 2024, posting its worst performance since 2008, but several analysts see room for a recovery now that the US laundering probes are done. The stock has seven buy ratings, six holds and two sells, according to data compiled by Bloomberg.

Chun sees upside for investors from Toronto-Dominion’s capital-markets unit, its wealth and insurance division and its Canadian personal and commercial banking business, which posted record revenue of C$5.1 billion ($3.6 billion) in the fiscal fourth quarter.    

For business lines that “don’t have any of the asset-cap restrictions, we see significant growth opportunities and significant momentum,” he said. “I would expect that our businesses will continue to outperform and hopefully that will then play through to our share price.”

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