TD Bank moves to dump US$9 billion in mortgages amid regulatory challenges
Toronto-Dominion Bank (TD), Canada's second-largest lender and a major player in US banking, is reportedly preparing to sell approximately US$9 billion worth of residential mortgage loans. This move is part of its efforts to adjust its balance sheet in response to restrictions imposed by US regulators following a plea agreement.
In October 2024, TD became the largest bank operating in the US to plead guilty to violating anti-money laundering laws. The settlement required the bank to pay over $3 billion in fines and penalties and imposed a cap on its assets in the United States, a rare and significant restriction. The asset cap is set at roughly $434 billion and includes additional business limitations aimed at ensuring compliance.
Portfolio details and upcoming bids
The portfolio up for sale consists of jumbo mortgages, a category of loans typically issued to US homeowners with strong credit profiles. These loans exceed the limits set by government-backed entities such as Fannie Mae and Freddie Mac. According to insiders familiar with the matter, spoken to by Bloomberg and Reuters, bids for this loan pool are expected next week, though the individuals declined to be identified due to confidentiality concerns.
Addressing past failures
TD's compliance issues stem from allegations that the bank failed to prevent money laundering activities involving drug cartels and other criminal enterprises. US authorities have scrutinized the bank’s role in facilitating illicit transactions, with ongoing investigations by multiple agencies. During a recent earnings call, TD CEO Bharat Masrani acknowledged the bank’s shortcomings, stating: “There were serious instances when the bank did not effectively monitor, detect, report, and respond to suspicious activity. This is unacceptable.”
The bank has already taken disciplinary measures, including the termination of employees deemed responsible, and set aside $450 million to address potential fines from ongoing investigations.
Despite these efforts, critics argue that penalties in Canada remain insufficient to deter financial crime. The Financial Transactions and Reports Analysis Centre of Canada (Fintrac), for example, has limited authority, with fines capped. TD recently paid a $9.2 million penalty to Fintrac, which experts described as negligible for a bank of its size.
Restructuring amid penalties
The asset cap has compelled TD to make significant adjustments, including selling off lower-yielding securities and restructuring its holdings. As part of these efforts, the bank aims to maintain operational capacity while staying within the limits set by regulators.
While TD works to address compliance gaps and rebuild its reputation, the impact on its customers remains uncertain. Experts warn that the costs associated with increased compliance measures may eventually be passed on to consumers. Christian Leuprecht, an expert on financial crime, emphasized that US regulators are serious about ensuring foreign banks adhere to American laws, stating, “If you operate in the United States, you must follow US law.”
Broader implications for financial regulation
The TD case has reignited discussions about the disparity between enforcement in Canada and the US. While US authorities impose substantial fines and operational restrictions, Canada’s regulatory framework is seen as more lenient, with calls for stronger penalties to prevent future misconduct.
As bids for the mortgage portfolio come due, the sale is expected to be a significant step in TD’s efforts to align with regulatory requirements while navigating the challenges of rebuilding trust and operational stability.
TD Bank's American adventure
TD has significantly expanded its presence in the United States over the past two decades, evolving into a major player in the US banking sector.
Early entry and acquisitions
TD entered the US market in 2004 by acquiring a majority stake in Banknorth, a regional bank based in Maine. This marked the beginning of a series of acquisitions that would solidify its footprint in the country. In 2007, TD acquired Commerce Bancorp, a prominent retail bank headquartered in New Jersey, which significantly increased its branch network along the East Coast. This acquisition rebranded TD as “America’s Most Convenient Bank,” emphasizing extended hours and customer-friendly services.
Expansion strategy
TD’s strategy focused on retail banking, targeting high-growth urban and suburban areas, primarily along the East Coast. It built a robust network of branches in states such as New York, Florida, and Massachusetts, distinguishing itself with extended operating hours and a customer-centric approach. The bank also expanded into commercial banking, wealth management, and lending, diversifying its US operations.
Challenges and regulatory scrutiny
As TD grew, it faced increased scrutiny from US regulators. In 2024, it became the largest bank in US history to plead guilty to violating federal anti-money laundering laws. The case highlighted lapses in monitoring and preventing suspicious activities, leading to over $3 billion in fines and penalties and the imposition of an asset cap.
Current position
Today, TD is the 10th largest bank in the United States, with a network of over 1,000 branches and a focus on retail and commercial banking. Despite regulatory setbacks, TD continues to play a key role in the US financial landscape, leveraging its extensive branch network, digital banking capabilities, and customer service to maintain competitiveness.
Outlook
While TD Bank’s expansion into the US has brought significant growth, it also highlights the challenges of operating in a market with rigorous regulatory oversight.
America’s biggest mortgage lenders
Although TD has grown to be the US’s 10th largest bank, it still hasn’t cracked the top 10 list for mortgage lending. As of 2023, the largest mortgage lenders in the United States, ranked by the number of loans originated, were:
United Wholesale Mortgage (UWM): Originated approximately 294,000 loans totaling nearly $108.5 billion.
Rocket Mortgage: Originated nearly 289,000 loans worth about $78 billion.
Bank of America: Originated around 92,000 loans totaling approximately $28 billion.
Fairway Independent Mortgage: Originated about 86,000 loans worth $27 billion.
CrossCountry Mortgage: Originated approximately 83,000 loans totaling nearly $30 billion.
US Bank: Originated around 72,000 loans worth $26 billion.
Navy Federal Credit Union: Originated about 71,000 loans totaling $14.8 billion.
Citizens Bank: Originated nearly 68,000 mortgages worth $15.6 billion.
PNC Bank: Originated approximately 67,000 loans totaling $19 billion.
loanDepot: Originated about 65,000 loans worth $21.5 billion.
Source CMP
By Matthew Sellers
