On February 11, Canada's Toronto-Dominion Bank announced its decision to divest its entire 10.1% stake in U.S. financial services firm Charles Schwab for around $14.6 billion. This move follows a strategic review initiated after a significant U.S. penalty.
TD currently owns 184.7 million shares in Charles Schwab and will sell 165.4 million shares at $79.25 each, totaling approximately $13.1 billion, at a discount of nearly 5% from Schwab's Friday closing price. Charles Schwab will buy the remaining shares from TD for $1.5 billion.
As a result of a guilty plea for money laundering failures, U.S. regulators imposed an asset cap of $434 billion on TD, restricting its growth in the U.S., a key market it had concentrated on for over a decade, along with other limitations.
The new CEO of TD, Raymond Chun, stated that the bank will allocate $5.58 billion from the proceeds for share buybacks and invest the rest in performance and organic growth. Chun, who assumed the position this month, emphasized that all options are being considered in the strategic review, including potentially exiting certain loan portfolios.
Following an October agreement in which TD became the largest bank in U.S. history to plead guilty to breaching a federal anti-money laundering law and agreeing to more than $3 billion in fines, analyst John Aiken from Jefferies expressed that the divestment will streamline TD's U.S. operations while highlighting that a potential shift in the U.S. wealth management strategy may emerge after the review is concluded and disclosed.
Analysts predict that TD could release capital between $10-12 billion. Despite the challenges, TD, like other Canadian banks, maintains robust capital levels, facilitating its expansion in the U.S. Earlier plans to acquire Tennessee-based regional lender First Horizon were abandoned shortly before the investigation came to light.