Toronto-Dominion Bank (TD Bank) has announced a comprehensive strategic plan aimed at reducing annual costs by up to C$2.5 billion ($1.8 billion) and has reinstated long-term growth targets. This move follows a period of uncertainty after the bank faced significant penalties related to a U.S. money-laundering case.
The Canadian banking giant is now targeting a 7% to 10% growth in adjusted earnings per share and a 16% adjusted return on equity by the end of its 2029 fiscal year. These goals were previously suspended in December.
Key Takeaways
- TD Bank is targeting annual cost reductions between C$2 billion and C$2.5 billion.
- The bank has reinstated its long-term growth targets, aiming for 7-10% adjusted EPS growth by 2029.
- A significant portion of the savings, C$500 million, is expected to come from automation and artificial intelligence.
- The strategy includes hiring 1,700 new wealth advisers across Canada and the U.S. to boost fee-based income.
- This plan follows a major U.S. money-laundering settlement that cost the bank over $3 billion in penalties.
TD Reinstates Financial Goals After Regulatory Setback
TD Bank is charting a new course by reintroducing its long-term financial objectives. The bank's leadership confirmed it is aiming for an adjusted return on equity of 16% by the conclusion of the 2029 fiscal year. Alongside this, it is targeting an adjusted earnings per share (EPS) growth rate of 7% to 10%.
These targets are not new but represent a restoration of confidence. The bank had previously suspended this guidance in December following a costly settlement related to anti-money laundering (AML) failures at several of its U.S. branches.
Background on the U.S. Settlement
The decision to suspend growth targets was a direct response to a significant regulatory issue in the United States. TD Bank paid more than $3 billion in penalties for failing to implement and maintain adequate anti-money laundering controls, which allowed illicit funds to pass through its systems. Reinstating the targets signals a move to look beyond the financial impact of the settlement.
The bank's new strategy is designed to demonstrate its ability to overcome recent challenges and deliver consistent shareholder value over the long term. The clear, multi-year targets provide a roadmap for investors and the market.
A Multi-Billion Dollar Cost Reduction Plan
Central to TD Bank's strategy is an aggressive cost-saving initiative. The company plans to achieve annual savings of C$2 billion to C$2.5 billion ($1.4 billion to $1.8 billion). These savings are expected to be realized through a combination of operational restructuring and technological advancements.
A portion of these efficiencies will come from an ongoing restructuring program that has already resulted in a 2% reduction of the bank's workforce. However, a substantial part of the future savings will be driven by technology.
AI and Automation Driving Efficiency
TD Bank projects that advancements in automation and the implementation of artificial intelligence (AI) will contribute approximately C$500 million in annual savings. This highlights the growing importance of technology in streamlining operations and reducing costs in the banking sector.
In a statement, TD Bank Group President and CEO Raymond Chun emphasized the focus on efficiency.
“We are building a simpler, faster and more efficient TD to outpace the market and accelerate growth. We’re investing in talent, harnessing AI, and deploying new digital capabilities to help our clients achieve their financial goals.”
Strategic Expansion in Wealth Management
While cutting costs in some areas, TD Bank is simultaneously investing in growth, particularly in its fee-generating businesses. The bank has outlined a significant expansion of its wealth management division.
The plan includes hiring a substantial number of new financial advisers to increase client engagement and drive sales of wealth products. The specific hiring targets are:
- 1,200 new advisers in Canada
- 500 new advisers in the United States
This move is intended to strengthen TD's market position in the competitive wealth management space and create more stable, recurring revenue streams that are less dependent on interest rate fluctuations.
According to CEO Raymond Chun, this investment is part of a broader effort to build on the bank's existing strengths. “TD is a tremendous organisation with North American scale and market-leading franchises. We are building on our unique strengths to enhance the client experience, drive performance, and deliver long-term value to shareholders,” he stated.
Capital Returns and Leadership Changes
The strategic overhaul at TD Bank is being led by Raymond Chun, who took over the CEO role from Bharat Masrani. The new leadership has already initiated several major financial and governance changes to support the new direction.
One key move was the sale of the bank's stake in Charles Schwab. The proceeds from this sale, estimated between C$6 billion and C$7 billion, are being used to fund a substantial share buyback program. This is part of a larger plan to return significant capital to investors.
Shareholder Capital Return
TD Bank projects it will return approximately C$15 billion in excess capital to its shareholders by the year 2026, combining share buybacks and other distributions.
The bank's governance has also been refreshed. In April, five directors stepped down from the board. John MacIntyre, a co-founder of Birch Hill Capital Partners Management, has since been appointed as the new board chair, bringing new oversight to the bank's strategic implementation.
