Toronto-Dominion Bank’yes (NYSE: TD) Shares have risen more than 60% over the past year. With this in mind, one might assume that the Canadian banking giant is firing on all cylinders today. However, that is not the case. And these three things could speed up your business if they go well.
The big problem for TD Bank, as this financial giant is commonly known, is its American division. This business segment was expected to be the company’s growth driver, given that its Canadian operations are largely mature. The company alone breached US regulations on money laundering controls, leading US regulators to place the US division under an asset cap at the end of 2024.
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The effective impact is that TD Bank’s U.S. business cannot grow until regulators are comfortable that internal control problems have been resolved. TD Bank has been spending on technology and staff to show that the money laundering problem is behind it. Doing that work is the big key.
Only after TD Bank feels confident it has resolved the internal control problem will it likely ask regulators to reconsider the asset limit. It would be much worse to ask and have regulators decide there are still deficiencies.
Still, the second big step is to remove the asset limit. That alone will likely lead to greater investor enthusiasm for the stock, as it opens up a vital growth engine that TD Bank cannot currently utilize.
After TD Bank improves its controls enough to remove the asset cap, it still has to find another U.S. bank to buy from to fulfill its U.S. expansion ambitions. In fact, the internal control problem forced the company to cancel an acquisition.
Finding a new deal likely won’t happen overnight, given the complexity of financial businesses and the importance of finding a bank that fits TD Bank’s conservative business culture. However, when a merger is finally announced, it will be a sign that TD Bank is back in the growth game.
The unfortunate thing about all of this is that the TD Bank story is not going to change overnight. It takes time to improve internal controls and for regulators to evaluate those controls. And it takes time to find suitable acquisition candidates. Still, if you’re looking at TD Bank, these three things need to go right before you can get back to firing on all cylinders.