TD Bank tops profit, says U.S. still key market as anti-money laundering probe drags

FILE PHOTO: The Toronto-Dominion (TD) bank logo is seen outside of a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie/File Photo

By Nivedita Balu and Jaiveer Shekhawat

(Reuters) -TD Bank on Thursday reported better than expected quarterly earnings helped by strength in Canada and its wealth management unit, even as its U.S segment struggled amid probes related to its anti-money laundering program.

TD, Canada's second largest bank, said net income at home rose 7%. This was helped by loan growth and newcomers opening accounts as it increased focus on the segment through a partnership with India's HDFC bank to attract customers, such as students moving to the country.

South of the border, the lender is facing a U.S. Department of Justice probe over its ties to a $653 million drug money-laundering case in New York and New Jersey related to illegal drug sales and an employee taking a bribe to facilitate laundering of drug money, but the bank is betting the region will continue to be a growth market.

"The US continues to be an important part for TD... we still believe in expanding stores and our footprint," CFO Kelvin Tran said in an interview, adding that it has invested over $500 million in program remediation and platform enhancements.

Chief Risk Officer Ajai Bambawale said there were "some procedural weaknesses" in the U.S.. "We were also disappointed that some of our colleagues didn't follow our code of ethics," he said.

Earnings fell 17% in the U.S. on an adjusted basis as it set aside $450 million to cover potential fines for one of three regulatory probes on the issue and is anticipating more monetary penalties.

The region typically brings in about a quarter to a third of TD's profit after its rapid expansion over the past decade, acquiring smaller region banks on the east coast and southeast U.S. and building a network of 1,100 branches.

But after its proposed $13.4 billion acquisition of First Horizon was scrapped, TD said it would continue to focus on the U.S. market expanding brick by brick by opening about 150 branches.

"The way we look at it is that it (AML probe) is situation dependent. We may pace the store opening differently given these priorities but we have a very strong franchise," Tran said.

TD said it is working with U.S. regulators to bring these investigations to a resolution so investors can have more clarity, and that a "comprehensive overhaul" of its U.S. AML program is well underway.

"We continue to view TD's U.S. anti-money laundering investigations as the biggest event impacting the company," RBC Capital Markets analyst Darko Mihelic said, noting that revenues were stronger than expected.

Loan loss provisions rose to C$1.07 billion from C$599 million a year ago.

The Wealth Management and Insurance unit's net income rose 19%. Adjusted net income rose to C$3.79 billion ($2.77 billion), or C$2.04 per share, from C$3.71 billion, or C$1.91 per share, a year earlier.

Analysts were expecting C$1.85, according to LSEG data.

($1 = 1.3664 Canadian dollars)

(Reporting by Jaiveer Singh Shekhawat in Bengaluru and Nivedita Balu in Toronto; Editing by Tasim Zahid and Chizu Nomiyama)