TD signage in Toronto. The bank beat analysts' profit estimates in its second quarter.Sean Kilpatrick/The Canadian Press
Toronto-Dominion Bank TD-T is reducing its work force by 2 per cent as part of a cost-cutting plan while the lender fixes gaps in its anti-money-laundering processes.
TD has been conducting a strategic review to identify new opportunities to expand its businesses after U.S. regulators and law enforcement levied severe and costly penalties over the bank’s anti-money laundering failings.
The bank launched a new restructuring program in the second quarter as it cuts costs as part of its review. TD is reducing expenses across real estate, employee severance, certain business exits and other measures, including the work force reductions.
The staff cuts will in part be done through attrition, TD chief financial officer Kelvin Tran said in an interview. Some of the employee reductions were completed in the second quarter, with the remaining expected over the next several quarters, he said.
“We’ve successfully done that in the past and we’ll look for opportunities to redeploy impacted colleagues across the bank,” Mr. Tran said.
“This restructuring effort is to create capacity to accelerate digital and AI investments to upgrade our capabilities and scale relationship with our customers.”
TD booked a charge of $163-million pre-tax in the second quarter and expects total restructuring costs of $600-million to $700-million pre-tax over the next several quarters. The bank expects to generate $100-million in savings in fiscal 2025 and up to $650-million annually.
The lender said it will host an investor day on Sept. 29 to present its new plan and share new financial guidance. In December, Canada’s second-largest lender suspended its financial targets for 2025.
TD reported second-quarter profit that topped analysts’ estimates as the lender earmarked fewer provisions for bad loans than expected even as Canada faces the threat of an economic downturn amid a tariff war and geopolitical tensions.
Some analysts expected Canada’s biggest banks to ramp up reserves for debt that could default as policy and trade uncertainty weighs on the ability of consumers and businesses to pay off their debt.
In the quarter, TD set aside $1.34-billion in provisions for credit losses (PCLs) – the funds banks set aside to cover souring loans. That was lower than analysts anticipated, and included $395-million against loans that are still being repaid – also known as performing loans – based on models that use economic forecasting to predict future losses.
Overall, TD increased its provisions from $1.07-billion in the same quarter last year. The bank bolstered its performing loan-loss provisions as a buffer against a deteriorating economy even as provisions for impaired loans – debt that is unlikely to be repaid – edged lower.
“Impaired is down and performing PCLs increased because of the macro environment and trade uncertainty,” Mr. Tran said. “The interest rate continues to be down from last year, but it’s still relatively high. There’s still inflation and that continues to put pressure on the consumer.”
The industries most exposed to policy and trade risk – including automotive, agriculture, manufacturing and retail – represent about 9 per cent of the bank’s gross loans and acceptances. TD said its exposure to borrowers most sensitive to these risks is relatively small, representing less than 1 per cent of the bank’s gross loans.
But trade policy has been unpredictable under U.S. President Donald Trump, and the credit quality of the bank’s loans depends on the direction of the economy in the year ahead.
“Despite a recent tariff de-escalation between the U.S. and China that is temporary in nature, there continues to be a high degree of macroeconomic and policy uncertainty,” TD chief executive officer Raymond Chun said during the call.
“This has made it difficult for businesses to make long-term decisions and created economic distortions such as inventory stockpiling and purchases being pulled forward to avoid tariffs.”
TD is the first major Canadian bank to report earnings for the second quarter. The rest of the Big Six banks release financial results next week.
TD earned $11.1-billion or $6.27 per share in the three months that ended April 30. That compared with $2.6-billion or $1.35 in the same quarter last year.
Adjusted to exclude certain items, including the sale of the bank’s stake in U.S.-based investment dealer Charles Schwab Corp., the bank said it earned $1.97 per share. That edged out the $1.78 per share analysts expected, according to S&P Capital IQ.
TD’s shares were up 3.2 per cent in early afternoon trading on the S&P/TSX Composite Index on Thursday.
“Lower than anticipated provisions led to a strong beat, and it appears to be viewed favourably by the market at this stage,” Jefferies analyst John Aiken said in a note to clients. “The U.S. restructuring appears to be on track, and the charges announced in the quarter at an all-bank level should further improve efficiencies.”