TORONTO, Dec 5 (Reuters) - TD Bank (TD.TO), opens new tab on Thursday warned of a challenging 2025 and suspended its medium-term earnings forecast as Canada's second-biggest lender works through its anti-money laundering remediation program following a U.S. regulatory probe.
Shares of TD, which faces an asset cap and a $3 billion penalty following a probe by U.S. regulators last year into its anti-money laundering program, were down about 6% after it said it would only update its targets in the second half of 2025.
TD also said it would hold a strategic review that will include reassessment of growth opportunities, productivity initiatives and where it needs to invest or divest.
"Everything is on the table," incoming CEO Ray Chun told analysts, adding that he was digging into the strategic review process that began last month.
"It will be quite comprehensive, and we will look at all the moving parts."
The lender warned fiscal 2025 would be a challenging year for the bank to generate earnings growth as it also invests in its risk and control infrastructure.
TD ran into problems with U.S. regulators for shortfalls in its risk and compliance program that provided ground for a host of illicit activity, from fentanyl and narcotics trafficking to terrorist financing.
Waiting another half a year or more for management to disclose the longer-run implications of its U.S. consent order "leaves the stock without a proper anchor," Scotiabank analyst Meny Grauman said.
CONTRASTING EARNINGS
TD issued its updates after the lender and Bank of Montreal (BMO.TO), opens new tab, two of Canada's biggest banks, missed analysts' estimates for quarterly profit, reflecting weakness in their U.S. businesses and bigger-than-anticipated funds to cover potential loan losses.
In contrast, the smallest of the country's big five banks - Canadian Imperial Bank of Commerce (CM.TO), opens new tab - reported a fourth-quarter profit that surpassed estimates, helped by smaller-than-expected loan loss provisions and strength at its Canadian retail arm.
BMO and TD have expanded in the U.S. through a series of acquisitions over the years, as they sought growth opportunities outside of Canada, catering to scores of clients on the West and East Coasts.
However, the businesses ran into problems.
BMO has also faced credit issues as some loan books have weakened due to clients struggling to repay their loans.
TD disclosed the U.S. regulatory probe shortly after it terminated its $13.4 billion acquisition of Tennessee-based lender First Horizon last year, a deal that would have given it more ground in the Southeast U.S. The probe followed investigations at its retail branches that occurred as early as 2021.
TD's adjusted net income fell 8% to C$3.21 billion in the fourth quarter. On a per-share basis, TD earned C$1.72, which was 10 Canadian cents lower than analysts' average expectation, according to LSEG data.
BMO earned C$1.90 per share in the fourth quarter, missing analysts' average estimate of C$2.41.
"There is no way to sugar coat a 20% miss to the Street, but if there is a silver lining to BMO's weak year-end result... it is that the market is forward-looking," Scotiabank's Grauman said.
BMO's shares reversed course and were up 2.9% as it assured investors that quarterly provisions would moderate through 2025.
CIBC earned C$1.91, beating the average estimate of C$1.79, with analysts lauding its "clean finish" as it tackled commercial real estate-related challenges in 2024. Its shares rose nearly 5% and hit a record high of C$94.2.
The results wrap up fourth-quarter earnings for the Canadian banks with mixed results and cautious optimism headed into fiscal 2025.
($1 = 1.4058 Canadian dollars)
Reporting by Pritam Biswas and Jaiveer Shekhawat in Bengaluru and Nivedita Balu in Toronto; Editing by Anil D'Silva, Mark Potter, Chizu Nomiyama and Paul Simao
