Toronto-Dominion Bank at Scotiabank Financials Summit Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : And I wouldn't want to be anywhere else. So Bharat, I think we need to start off by talking about your AML issues in the US. I know you provided an update ahead of Q3, and you're limited in what you can talk about. But I thought maybe just given how big a subject this is in investors' minds, you could just give us an update on what can you tell us on this issue? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Firstly, as I mentioned in our earnings call a couple of weeks ago, we've been working hard on trying to get a global resolution regarding this matter in the US. And now I'm happy to report that in we are through the tunnel. We can see light at the end, but we are not done yet. Our expectation is that we'll have a global resolution regarding this matter by calendar year end. And as far as the financial penalties and fines are concerned, we announced a provision of $2.6 billion in the quarter. In addition to that, the previous quarter, we took $450 million. Our view is that that's our estimate of what this will cost to get this issue behind us from a fines and settlement perspective. In the meantime, we are continuing to work on remediating the program. We attracted brand new leadership there, terrific individuals who have joined the bank, hired hundreds of AML professionals who are now very much part of TD, invested in training, invested in new platforms, new data, infrastructure. And the remediation process is underway. And hopefully, we'll be in a position to give you more clarity when we come to the final global resolution. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Sticking to, AML, I just wanted to ask, as a professional manager with lots of experience, what lessons do you draw from this experience? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director At TD, we have a very strong risk culture foundation. It has been there for many, many years. We take that very seriously, and it has been a core strength of the bank over many years. But I think the big lesson is you can't take anything for granted, including the culture and the foundation that you've built over many years. We had a situation here where, I don't -- some threat actors, bad actors were able to exploit the bank, and we obviously regret that, take -- own it, take responsibility for it and make sure that we do everything that we need to learn from that and to ensure that doesn't ever happen to the bank again. What are the key lessons? I think the specific areas. It's easy in a bank of our size to sometimes not look at accountabilities as clearly as we should. So here, one of the key lessons is to deepen accountabilities for such types of risk in all three lines of defense, not only the front lines and the control functions but as well as our audit practices to make sure that folks understand this risk right through the organization and act with urgency. It's important because in today's day and age, time is precious. You've got to deal with issues very quickly. The third big lesson obviously is that, as a bank of our size, we're a global bank, there's lots of information available. And it's important to coordinate and make sure that the right information is available to the right individuals and right areas of the bank on a real-time basis. So those are the key, I'd say, lessons. But the good thing about these things when you have a strong sort of risk foundation is you learn from it, make the adjustments and move on, and make sure that you emerge out of these situations even stronger.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : So I don't want to belabor the point in terms of the AML issue. Obviously, a lot of things that we have questions about that you can't answer. But where I want to take the conversation is just to other parts of the organization, the strategy. And I think the AML issues, at least in investors' mind, seem to have -- investors definitely do believe that the AML issues have implications for other parts of the bank, for the strategy in the US, and maybe even implications for Canada as well, so I want to go down that road. First, in terms of the US, in terms of -- key question I get is, what are the growth implications on the US business from this AML issue? Obviously, people are thinking about them in part on the non-monetary side that you can't go into. But if you could help us at least frame this discussion or REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : That said, and I think it came out on your Q2 call. I mean, in Q2 '23, if we go back, you talked about increasing store openings by 50%, doubling wealth advisers. It sounded like more recently you've scaled that back. And so if you could just go into what your outlook is from that specific perspective in terms of store openings, wealth advisers? And a bigger question -- so in a way, it does seem like the AML issues are impacting your growth plans in the US, if not directly, then indirectly. Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Well, it is a top priority. To fix our issues is a top priority. And for store openings and all that, we look at it from a market perspective. We've slowed it down, yes, you said, quite dramatically. But we got to look at the investment profile of the bank as well as to at what pace we do it, markets are changing quite dramatically, how customers are dealing with us as well. So we are taking that as a data point. But the fundamentals of our US business is a strong franchise in very important markets. That has not changed.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Digging a little bit deeper into that. So should investors look at this really more as a financial investment, a good financial investment that TD made or is there something more here that TD benefits from this Schwab stake? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Well, we do have a very big deposit relationship. It is a strategic relationship. We are a big shareholder, and we have Board representation. So it's more than just an investment. And it has worked out really well for the bank.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Just digging into some of that. I mean, one push back that I get from investors when it comes to TD and the Canada strategy specifically is just this view that, because of challenges in the US that Canada has to work harder for TD. And so that maybe that pushes TD to be a little bit more aggressive in terms of risk, in terms of trading volume, at the expense of profitability. Curious your perspective on that and how you would kind of push back on that perspective? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Not only would I push back, I totally disagree. Look at our performance, look at our NIM performance, look at our returns, look at our volume growth, look at our market shares. So I think if that's the view, then I think facts would -- are important to put on the table rather than anecdotal stuff on saying, oh, maybe this bank is doing that, that bank is doing that. We're very happy, we're through the cycle lenders, and we're consistent in how we manage those businesses.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : I want to talk about expenses. On the call, it sounded like expense guidance for this year has moved from mid single digit to high single digits. And so question of why we're seeing that. Is this purely the AML issuing, and can it go up from here? And is the outlook for TD higher expense growth because of this AML issue, and could that extend into 2025 and how should we be thinking about that? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Firstly, the expense change in guidance. You're right. We were expecting mid single digit growth, and now we think it would be high single digits. And three reasons for that. Our investment in risk and control infrastructure is higher than what we were expecting. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Maybe that's a good segue way. So $30 billion total expenses. Could you put a price tag even just round numbers in terms of people, systems, this AML issue? How much is it in order to deal with this AML issue? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Well, we said what the fines and settlements are going to be, so you know that number. We said that on an ongoing basis, at least for '24 into '24, that at the corporate level, we'll be having a number of $200 million to $250 million, which is approximately double than what we normally have. And that's going into our investments on the recurring -- sorry, on a one-time basis. We thought we should carry that in corporate, so that once we are done making those investments, they disappear and don't become part of the run rate of the bank. And then the run rate is in the segments itself. So that we will give you better sense after Q4 when we know that this is the way it is going to work out. But I was trying to give you a sense from the -- as the scale of the bank and the overall bank as to what this is in relation to the overall bank. And that's what I was saying by $30 billion overall expenses, and I expect this to be manageable.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : So is it -- the right way to think about it, is it thinking more holistically beyond AML? I mean, we're really talking about broader initiatives here, whether it's AML or other types of regulatory issues as well that you're investing across the spectrum here? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Yeah. But that would be more BAU, like more business as usual. As a bank, we're 170 years old. There are new techniques, new ways of managing certain kind of risks or businesses, and we will make those investments in the normal course. So that's how we should look at it. But I think on the AML side, the AML fraud, what you call this financial crimes generally is turning out to be -- is evolving very fast and very important for banks to keep up to make sure that the financial system remains pure.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : So basically, it's put all together, if we see your CET1 above 12.5%, it's not necessarily the case that this is -- we shouldn't necessarily view this as deployable capital that this is an additional buffer for the time being that you wouldn't necessarily want -- Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director But it depends on the way we -- our capital deployment has not changed. We will support our core strategies. It's important that we do. We want to make sure if we're lacking any capabilities, we'll use our capital to build those capabilities in the bank. In the end, and we've shown this over the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Talking about buybacks, over the past four quarters, you bought back a lot of shares, 87 million shares. Given the most recent announcement in terms of selling down the Schwab stake, do you view that as a mistake? Obviously, hindsight is always much easier to make decisions with. But how would you characterize that level of buybacks given what we know today? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director I don't consider it as a mistake. Firstly, the Schwab stake, I said it's a strategic investment, and we maintain all the strategic flexibility that we think is important, including our governance requirements, et cetera. Not that you should look at only the math here. But if you look at when you're buying back stock at a particular multiple and selling a stock with a much higher multiple, it's still accretive to TD. So I think people get excited from a perspective, but the numbers do the talking at the end of the day.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : I want to talk about the capital markets. You've had Cowen now for quite a while, a year and a half. I'm curious your perspective on how this deal has performed relative to your expectations? What's working and where do you think -- where is there more work to be done in terms of getting it to where you want it to be? Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Firstly, it has been a great -- remarkable as to how well it has worked out. If you look at why Cowen at the time and now TD Cowen, we were looking at complementary businesses between TD Securities and now TD Cowen as well. We had -- wanted to make sure that we're equity capital markets in the US that we had more capability than we had previously. We didn't have much of a research platform for the US, and with TD Cowen, we have a fantastic research platform now. There were certainly attractive, what I call investment banking verticals that we did not have, and now we do. Biotech comes to mind, healthcare. And then, as well, TD Bank America's most convenient bank, we have a large retail commercial footprint and we have lot of existing clients that would be, what we'll call in the middle market segment. And these are clients that require more capital markets types of capabilities to be put in front of them. Again, TD Cowen very good at that particular segment. So very complementary businesses. And it has been remarkable in that space. Normally, you worry about, you acquire something, are your values going to be aligned, what about the culture, are you be able to retain the talent? And the teams have worked very hard, and Riaz has done a terrific job as has Jeff Solomon and others to to create that platform. And you can see the performance, and Riaz talked about it, I think. One of your colleagues asked him the question in the last quarterly call. Business now has the capability of generating, I don't know, $1.7 billion, $1.8 billion in revenues a quarter in the current conditions, in the market conditions. So we like as to how this has played out. It provides us with a way to address some of the gaps we had before and now we are a full-service competitor in an important market.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Finally, I wanted to talk about succession. You've been in the role for 10 years now. You're dealing with the US government's investigation. So why not just say, let someone else deal with this. Maybe start there, thoughts on -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Basically, that's what I'm going for. I put you on the spot, so you have to say yes, but -- Bharat Masrani - Toronto-Dominion Bank - Group President, Chief Executive Officer, Non-Independent Director Listen, succession in a bank like TD, any large organization is important, is an important function for the Board. Probably the most important one decision Boards make. In TD, we have a very robust process in place that goes back multiple years, and we have a terrific bench in the bank as well and very deep talent, and that's why you see what TD is all about. We've been consistent performers over many, many years and have scaled businesses in every market in which we operate. So listen, I'm busy, not only to remediate our progress in the US, but how do we serve our customers well and make sure that the bank continues to perform as all our stakeholders would expect.