TD Bank has unveiled an ambitious strategy overhaul aimed at regaining traction in the U.S. market following a tumultuous year characterized by substantial regulatory fines and an asset cap due to compliance failures. This comprehensive plan focuses on substantial cost-cutting measures, targeting affluent customers, and enhancing artificial intelligence capabilities.
Over the past year, the Toronto-based institution has invested heavily in restructuring its operations and reforming its risk-management framework. During an investor day event, executives highlighted a robust agenda replete with growth objectives aimed at revitalizing the U.S. business, which serves approximately 10 million customers and boasts assets of $386 billion.
In a bid to streamline operations, TD Bank plans to cut costs by $750 million over the next four years. This will involve optimizing its branch network, automating processes, and trimming governance expenditures. Notably, the bank intends to close or relocate 10% of its roughly 1,100 U.S. branches, which is anticipated to reduce costs by an estimated $100 to $150 million. This decision follows the closure of 174 branches and the opening or relocation of 62 branches since 2020.
In addition to reducing expenses, TD aims to boost revenue in U.S. co-branded credit card offerings and services tailored for affluent customers, expecting to generate additional revenues of $700 million and $300 million, respectively. Overall, the bank projects a 13% increase in return on equity for its American segment by 2029.
Leo Salom, head of TD’s American operations, acknowledged that while the bank’s deposit franchise is central to its business, it currently lacks deep relationships with many clients. TD’s strategy aspires to enhance cross-selling opportunities through technological advancements, the optimization of its branch locations, and a renewed focus on core products.
This new direction follows a challenging year for TD Bank that saw U.S. regulators impose an asset cap and levy over $3 billion in fines due to significant anti-money laundering oversights. Reflecting on last October’s regulatory actions, Salom considered it one of “the most difficult days” for the institution. However, he expressed optimism that the U.S. operations will be pivotal for TD’s future growth and shareholder value.
Despite the compliance challenges, TD has maintained stable deposits and low employee attrition rates. However, the restructuring process includes plans to reduce its workforce by about 2%. Salom believes the bank’s U.S. branch has a “unique opportunity” to become a more efficient and competitive player in the market.
To comply with its $434 billion asset cap, TD has already contracted its asset base by roughly 10% through the divestment or winding down of certain loan portfolios and business lines. This restructuring had led to after-tax losses of around $1.4 million in the quarter ending July 31, with total anticipated losses from this strategy around $1.5 billion. Nonetheless, recent adjustments to the investment portfolio have contributed positively, generating an additional $500 million in net interest income this year.
Looking ahead, TD aims to achieve $2.9 billion in net income after taxes from its U.S. operations by 2026, forecasting a significant increase in earnings growth and return on equity as the institution progresses with its restructuring.
The bank estimates that it will allocate about $1 billion to anti-money-laundering remediation efforts through 2025 and 2026, emphasizing that these initiatives remain a top priority. CEO Raymond Chun, who assumed leadership earlier this year, highlighted the necessity of cultural changes within the organization, particularly emphasizing accountability at all levels.
Chun forecasts a fundamental reset of TD’s cost structure, targeting reductions of CAD 2 billion to CAD 2.5 billion by 2029. He asserted that the bank is implementing disciplined investments to foster growth and streamline operations. As TD navigates a dynamic economic landscape, Chun acknowledged the various risks and innovations at play, particularly in the trading relationship between Canada and the United States, and reiterated that there is significant work ahead for the institution.
