U.S. Attorney General Merrick Garland speaks at a press conference after announcing that TD Bank will plead guilty to money laundering charges and pay a $3-billion settlement, at the Justice Department in Washington, D.C., on Oct. 10, 2024.Carol Guzy/The Globe and Mail
Moody’s Ratings downgraded Toronto-Dominion Bank TD-T late Wednesday on concerns over governance weaknesses and anti-money laundering failures that led U.S. regulatory and law enforcement to impose tight restrictions on the lender’s growth in the market.
Moody’s lowered the long-term ratings of TD and its U.S. subsidiary, including its Baseline Credit Assessment (BCA) which evaluates the strength of a company without government support measures, such as a bailout.
What are the repercussions for TD Bank’s money laundering scandal? We answer your questions
Credit ratings help debt investors assess the risk of loaning money to a company. Lower ratings often force a company to pay higher rates on its borrowings to offset that risk.
Investors refer to credit ratings when assessing the risk of loaning money to a company. When a company receives a lower rating, it typically has to offset that risk by paying higher rates when it borrows money.
“The downgrade of TD’s BCA reflects the scale and severity of the bank’s risk management failures as evidenced by its (Bank Secrecy Act/anti-money laundering) settlement with the Department of Justice and regulators, which has changed our view of the effectiveness of TD’s governance” Moody’s vice president and senior credit officer Robert Colangelo said in a statement.
He added that “next year will be a transitional year for the bank’s U.S. operations” as it remediates the deficiencies in its anti-money laundering program and reorganizes its balance sheet to comply with the asset cap that regulators imposed on its U.S. subsidiaries.
TD did not provide a comment in response to a request from The Globe.
The U.S. Department of Justice said that TD’s failure to prevent money laundering was known by a wide scope of employees, including the two senior managers responsible for overseeing the anti-money laundering program. It also said that over more than a decade, regulators, a TD internal audit, and third-party consultants repeatedly warned executives and the board about issues with the bank’s transaction monitoring program.
Ottawa is facing pressure to address the sweeping indictment of Canada’s second-largest bank by U.S. officials.
“We are making sure that there is full accountability for those responsible for this wrongdoing in the United States,” Mr. Trudeau said during Question Period in the House of Commons Wednesday afternoon in response to a query from an opposition member about what the federal government is doing to address TD’s “criminal actions.”
While Moody’s downgraded TD’s BSA to a2 from a1, along with other long-term ratings drops, its ratings are still well above junk status, also known as non-investment grade. The bond rater also upgraded the bank’s outlook to stable from negative, saying that TD should be able to maintain its financial profiles due to the strength of its Canadian business, even as the lender invests in remediating its anti-money laundering failings.
“There remains a very high likelihood that TD would provide support to TD U.S., if needed, given its size and strategic importance to TD, including that TD U.S. is the principal source of growth and diversification for TD outside Canada,” Moody’s said in a statement.
Moody’s is not the only debt rating agency to flag issues with TD. On Oct. 15, S&P Global Ratings cut TD’s long-term issuer credit rating to A+ from AA- over concerns that the “findings regarding TD’s U.S. management hamper our view of its conservative risk management and effective corporate governance, and, in turn, compromise the bank’s creditworthiness.”
S&P said TD’s management “failed to live up to standards expected of one of the world’s highest-rated banks.” And while TD has taken several steps to address its deficiencies, S&P said “it will take time to improve the risk management culture across the group, overhaul its practices, strengthen the organizational structure, and demonstrate the effectiveness of these measures.”
