(Bloomberg) — Shares of Toronto-Dominion Bank dropped again on Friday, bringing their two-day decline to almost 10%, after the lender agreed to stiff penalties for allowing financial crimes to take place for years in its US branches.
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Canada’s second-largest bank was fined $3.1 billion and hit with a cap on its US retail banking assets after pleading guilty Thursday to a raft of money laundering charges. The stock fell 6% that day and another 4% on Friday, ending the week at C$78.48 in Toronto — the lowest close since Aug. 9.
It was the biggest two-day skid since March 2020, the period of the Covid stock market crash.
According to a prominent Bay Street analyst, the pain of the regulatory strictures will linger for a long time.
Bank of Nova Scotia analyst Meny Grauman said TD investors can look to Wells Fargo & Co. for insight into what the asset cap might mean. The US lender has faced balance-sheet restrictions since 2018 after a series of scandals that included the creation of false customer accounts and other compliance lapses.
That has been a major drag on Wells Fargo when compared with the performance of JPMorgan Chase & Co., Grauman and his team wrote in a report Friday.
“The bottom line of our findings,” they said, is that “constrained assets resulted in constrained earnings.” Return on equity and price-to-book multiples deteriorated as well.
Wells Fargo’s earnings-per-share growth has lagged that of JPMorgan since the imposition of the asset cap, the Scotiabank report said. Total returns at JPMorgan, including dividends, have surged by 132% since February 2018, while Wells Fargo is up just 13% over the same period, according to data compiled by Bloomberg.
“In our view, breach of consumer trust and regulatory consequences have materially affected shareholder total returns over time, and in this case, one must look past P/E multiples to understand what the events have truly meant for shareholders,” Grauman wrote.
Wells Fargo has taken years to remedy the situation and meet regulatory requirements to fully remove the cap on its assets, a development that could occur next year, the report said.
–With assistance from Christine Dobby.
(Updates with closing share price data beginning in the first paragraph.)
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