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Professor says TD’s board should discuss 'tenure of the CEO' amid regulatory probes

A governance expert has advised that Toronto-Dominion Bank’s (TD) board should consider succession plans for its CEO amid ongoing U.S. money laundering investigations. Richard Leblanc, a professor of governance, law, and ethics at York University, emphasized the need for TD’s board to discuss the future of CEO Bharat Masrani, especially in light of the bank’s current challenges.

Leblanc pointed out that the U.S. Department of Justice's investigation has significantly impacted TD Bank's reputation. Earlier, Jefferies Analyst John Aiken suggested that TD could face a “lost decade” due to its involvement in an alleged money laundering scheme.

Given the situation, Leblanc said TD’s board should evaluate whether to bring in external leadership or promote from within. Bharat Masrani, who is 67 and has led the bank for ten years, could either continue to steer through the crisis or be replaced for a fresh start.

TD Bank recently reported its second-quarter earnings, surpassing estimates with strong performance in its capital markets division. The bank earned $2.04 per share on an adjusted basis, above the $1.85 predicted by analysts. However, net income was slightly below expectations at $2.56 billion, partly due to loan-loss provisions and costs related to the anti-money laundering overhaul.

Leblanc noted that TD is accused of laundering hundreds of millions of dollars through U.S. employees using gift cards. The Office of the Superintendent of Financial Institutions (OSFI) oversees anti-money laundering regulations, which should have prevented such issues.

Peter Routledge, OSFI’s superintendent, while not discussing the TD case directly, stated that anti-money laundering problems pose significant threats to an institution’s integrity. He emphasized the need for boards to address these threats promptly and seriously.

Since the allegations, TD has invested over $500 million to strengthen its anti-money laundering measures. The bank is also facing probes from three regulatory bodies and the U.S. Department of Justice over a US$653 million drug laundering case. Analysts estimate potential fines could reach US$2 billion, significantly impacting future earnings.

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