By Nivedita Balu, Chris Prentice and Karen Freifeld
TORONTO/NEW YORK (Reuters) -TD Bank will pay $3 billion in penalties and plead guilty to resolve U.S. criminal charges that it failed to do enough to prevent money laundering, two sources familiar with the matter said on Thursday.
An asset cap, which the sources said would be imposed by the Office of the Comptroller of the Currency, is a rare step, typically reserved for severe cases. It would deal a major blow to TD, which has sought to expand further in the United States, which accounts for about a third of the bank’s income.
TD also agreed to pay $3 billion in combined penalties, the two sources and a separate source familiar with the matter said. They would be paid to U.S. banking regulators, the Justice Department and the Treasury Department’s Financial Crimes Enforcement Network, the two sources said, confirming details reported Wednesday in the Wall Street Journal.
The sources spoke on condition of anonymity, as the resolution is not yet public.
The deal, expected to be made public later on Thursday, will resolve investigations by the Justice Department, the Office of the Comptroller of the Currency and Treasury’s Financial Crimes Enforcement Network. It is also expected to include installing independent monitoring, the two sources said.
An asset cap is “worst case scenario” for TD, said Cormark Securities analyst Lemar Persaud. The bank has already set aside $3 billion for the fine, less than Persaud’s estimate of about $4 billion.
Persaud drew a parallel with Wells Fargo, which has a $1.95 trillion asset cap in place following a fake accounts scandal, which has constrained its earnings. An asset cap would also constrain TD’s profits but to a lesser extent than it did for Wells Fargo, he said.
The TD probe has led to “significant underperformance of the stock and, we believe, the retirement of the current CEO Bharat Masrani,” Persaud said.
TD is Canada’s second biggest bank and the 10th largest in the U.S. The lender first revealed it was responding to inquiries from regulators and law enforcement last year, just months after it terminated a $13 billion acquisition of regional lender First Horizon (NYSE:).
Federal authorities began probing TD’s internal controls after agents discovered a Chinese criminal operation bribed employees and brought large bags of cash into branches to launder millions of dollars in fentanyl sales through TD branches in New York and New Jersey, a source confirmed.
TD has spent millions to strengthen its compliance programs, fired dozens of staff at its U.S. branches and named its Canadian personal banking head Ray Chun as its new CEO, distancing its new chief from the money laundering scandal.
CEO Masrani, who has been at the helm for nearly a decade and previously led its U.S. operations, will retire next year. Masrani has said he takes full responsibility for the money laundering issues that have plagued the bank.
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