2024: The Year a Rising Star of US Banking Had Its Wings Clipped

Measured by volume of jaw-dropping details, the Wall Street scandal that eclipsed all others in 2024 came through New Jersey by way of Toronto.

TD Bank (TD for Toronto Dominion), the Cherry Hill, NJ-headquartered subsidiary of the Canadian banking giant, had made an astronomical push into the US market, becoming one of the 10 largest banks by total assets in the country.

Then came a press conference that’s likely to change the trajectory of the US banking industry for years to come.

“You guys really need to shut this down LOL”

In October, TD Bank was fined more than $3 billion by regulators including the Department of Justice after pleading guilty to letting money-laundering networks run rampant under its watch: Some $670 million in illicit funds were funneled through the bank, including by international drug traffickers, the Justice Department said.

Many staff allegedly knew what was up, and how could they not — the details revealed by the authorities revealed flaunting straight out of a Hollywood crime caper. In a red flag the size of the surface area of Mars, one criminal network would dump piles of cash on the bank’s counters. Another network gave TD Bank employees tens of thousands of dollars in gift cards to keep processing shady transactions. It was so glaringly obvious that one TD Bank location manager wrote to another, in 2021, “You guys really need to shut this down LOL” The impact of the case is significant:

• TD Bank’s rapid rise to one of the top 10 banks in the US was fueled by acquisitions — of NJ-based Commerce Bank in the northeast, of South Carolina-based South Financial in the southeast — but any future growth is on hold, after regulators placed a $434 billion asset cap on the bank, keeping it stuck at September 2024 levels for the indefinite future.
• The Office of the Comptroller of the Currency, which oversees the asset freeze, ordered TD Bank to hire an independent consultant to review its anti-money laundering practices and draft an “action plan” — including the recommendations of that consultant — to reform its compliance programs by February. If TD fails to follow through on reforms in the OCC’s judgement, the bureau can start tightening the asset cap by 7% every year.

To put it not mildly, Jefferies analyst John Aiken told the Financial Post that forecasting the earnings of TD Bank’s parent company in the next few quarters will be an “absolute nightmare.” TD Bank Group’s stock, traded on the Toronto Stock Exchange, has fallen over 12% this year — by contrast, Canadian bank rivals RBC and Scotiabank have risen 29% and 21%, respectively.

The Comeback Kid: The TD story resonates in particular because another US banking giant, Wells Fargo, is angling to finally be released from a $1.95 trillion asset cap imposed in 2018 for misdeeds that included creating fake accounts in the names of customers to inflate performance.

Since then, Wells Fargo has missed out on billions in profits and watched rival JPMorgan Chase add nearly the equivalent of Wells Fargo to its balance sheet. Wells Fargo’s asset cap is reportedly likely to be lifted in the first quarter of 2025, which would unleash what is still the fourth-largest bank in the US by assets at a time when dealmaking is on the rise.