Dive Brief:
- Toronto-based TD is in the process of selling a $9 billion residential mortgage portfolio, as part of a strategic review underway at the bank, CEO Raymond Chun said Tuesday.
- The deal is set to close at the end of the month, Chun said during a conference appearance, although he didn’t name the buyer. Bank of America is the buyer, according to unnamed sources cited by Bloomberg and Reuters.
- A Bank of America spokesperson declined to comment. A TD spokesperson also declined to comment.
Dive Insight:
TD seeks to simplify its portfolio as part of a comprehensive strategic review kicked off last year, after the bank was hit with more than $3 billion in penalties and a $434 billion asset cap on its U.S. retail operations over deficiencies in its money laundering safeguards. TD is restructuring its balance sheet to reduce its U.S. retail assets by about 10% to comply with the asset cap.
Over the years, the Canadian lender has added products, business lines or services, and some of those have come through acquisitions, including the $9 billion correspondent mortgage portfolio acquired through TD’s acquisition of Scottrade in 2017, Chun said.
The portfolio “is not franchiseable. It’s not a business or a portfolio that we want to scale,” he said. And it offers low, single-digit return on equity, he added.
“We’re identifying where can we actually clean up our portfolio, get out of sort of non-franchiseable, non-core portfolios?” he said.
TD is about two-thirds of the way through the strategic review, he said. As part of that endeavor, executives are also considering capital allocation and business mix; where TD needs to invest; and how best to restructure the bank’s cost base without jeopardizing required AML remediation work, Chun said.
TD has reached $40 billion of the $50 billion buffer executives are targeting in relation to the asset cap, and the bank’s bond investment repositioning is completed, coming in at the higher end of a $300 million to $500 million range, he said, without elaborating.
Chun indicated in January that offloading some of the bank’s loan portfolios would be likely, as TD seeks to emerge from the strategic review with a “renewed focus” around optimizing its return on equity in the U.S. In February, TD said it was selling its entire investment in Charles Schwab, as part of its strategic review.
In December, Bank of America bought $990 million in multifamily commercial real estate loans from HomeStreet, paying about $906 million for the loans. And last June, the Charlotte, North Carolina-based lender purchased CRE loans from WaFd in a $2.9 billion deal.
As TD digs in to address its AML deficiencies, the bank expects to spend about $500 million on that work in fiscal 2026, in addition to the $500 million budgeted for fiscal 2025, Chun said. In 2027, expenses should start to normalize, he said.
The bank has brought on about 50 executives in AML, and added about 700 staffers to address remediation work, he said.
“I think, for the entire industry, from an AML perspective, the standards are going up,” Chun said. “The investments will be a continuous investment that the industry will need to make, because bad actors continue to find new ways.”
