We now have a ballpark price tag to put on Toronto-Dominion Bank’s anti-money laundering lapses – $4-billion. That’s how much TD has set aside so far to cover off the penalties it anticipates will be levied by U.S. regulators.
That sum rose dramatically after the close of trading on Wednesday, when the bank announced it would make a US$2.6-billion provision in its fiscal third quarter. Combined with money already earmarked for U.S. fines, that pushes the total in excess of $4-billion Canadian. And while that’s an enormous financial toll, it’s far from the bank’s only problem.
TD is also facing potential constraints on its U.S. operations after an investigation found that a U.S. drug ring laundered more than US$650-million through a number of bank branches, including TD’s. Negotiations with U.S. authorities have weighed so heavily on TD’s outlook, investors are essentially ascribing negative value to TD’s U.S. retail bank, which makes $4-billion a year.
If there’s a silver lining here, it’s that TD says it expects a “global resolution,” including penalties both monetary and otherwise, to be “finalized by calendar year end.”
This news comes as TD reports its third-quarter financials this morning. It should make for a doozy of an earnings call!
Up Top – Railway Edition
Well, that escalated quickly. Just as we were all learning of the potential of a railway disruption, the country’s vast freight rail network was shut down in the early morning hours, when both Canadian Pacific Kansas City railway and Canadian National Railway locked out much of their unionized workers after negotiations broke down.
As The Globe’s Eric Atkins has reported, contract talks between the union and the two companies are usually staggered by a year. But in 2022, after the federal government introduced new rules on worker fatigue, CN requested a yearlong extension to its existing deal, bringing labour stoppages across the freight network into unfortunate alignment.
The rail stoppage has the potential to inflict a substantial toll on the Canadian economy. It’s a crucial time for the country’s farmers and grain exporters, who need the railways to get their product to market. More than $50-million in wheat, canola and other grain is shipped by rail every day in late summer and the fall.
We know what you’re going to ask and we’re way ahead of you. Who’s to blame for this? Why, the feds, of course! But not for the reason you might think.
IN FOCUS
The old switcheroo
The Supreme Court of Canada recently ruled that even fraudsters deserve financial forgiveness.Sean Kilpatrick/The Canadian Press
Most scammers are in the business of bankrupting others. But some are finding the perks in bankrupting themselves.
Take Thal and Sharon Poonian. The B.C.-based couple were found to have orchestrated a pump-and-dump scheme involving a small oil and gas company listed on the TSX Venture Exchange, which left “hundreds of investors financially devastated,” the B.C. Securities Commission (BCSC) said in 2015. The regulator ordered the pair to repay the $5.6-million they had obtained through the scam and pay an additional $13.5-million in administrative fines.
Then, in 2018, the couple declared bankruptcy. Their financial pracarity, they argued, should spare them from making any payments to the commission. Two separate court rulings disagreed. The matter then headed to the country’s highest court.
The judgment
Three weeks ago, the Supreme Court overruled the lower courts. The $5.6-million disgorgement order would stand, since it was directly linked to the fraud. But the $13.5-million punitive fine would be forgiven as part of the bankruptcy process.
There was division within the court on the matter. Two dissenting justices wrote that the judgment could “permit bankrupts to benefit from their dishonesty through a release of liability.” The precedent set by the Supreme Court means the only recourse for regulators would be if Parliament amends the country’s bankruptcy laws.
The pushback
Regulators have characterized the decision as a serious setback in the effort to rein in securities fraud. “Our arsenal of enforcement weapons has been reduced,” Ed Waitzer, former chair of the Ontario Securities Commission, told The Globe’s Jameson Berkow.
The BCSC has since disclosed that more than 40 individuals and companies, owing a total of roughly $80-million, have had their fines wiped out through bankruptcy. It amounts to an “escape hatch” for securities fraudsters, the regulator said.
The counterpoint
Joe Groia, a former head of enforcement at the Ontario Securities Commission, says the Supreme Court got it right.
Bankruptcy is meant to provide a fresh start for the overly indebted. That applies regardless of the conduct that led to bankruptcy in the first place, Groia says. And in the case of the Poonians, the order to return their ill-gotten gains still stands. “Canadian courts have made it clear that they believe a regulator’s harsh view of dishonest market conduct is not a licence to chase a market participant to their grave to try to collect administrative fines.”
CHARTED
I’m just gonna put, put, put it off
In trip planning, unlike newsletter writing, extreme procrastination can be a virtue. Consider the Paris Olympics. If you started making arrangements a year in advance, you probably would have paid close to $800 a night for a hotel, according to data gathered by Lighthouse Intelligence, a hospitality industry analytics company.
Now, say you’re the type to put the task on the back burner for 11-and-a-half months or so. Just two weeks before the Games started, the average room rate was down by more than 40 per cent from its peak. Some European cities have seen a similar trend in the leadup to Taylor Swift concerts, personal finance reporter Erica Alina writes.
The lesson: Never plan ahead. Kick back and let the savings come to you.
THE OUTLOOK
On our radar
Today: There’s a decent slate of U.S. economic readings set for release, including initial jobless claims, flash services and manufacturing PMI indicators, and existing home sales. In all cases, they will be viewed through the lens of whether they make the Fed more or less likely to cut rates.
Tomorrow: The main event of central banker Woodstock takes place when Jerome Powell takes the mic at the Jackson Hole economic symposium. Fed bingo players should watch for “jobs,” “consumer,” “loosening,” and, as a long-shot, “gnarly.”
Shein, the Chinese retail giant, has accused its competitor Temu of stealing its designs, copying its product images and engaging in other types of fraud. But isn’t that what fast fashion is?
Flight routes are on the decline in Canada, a byproduct of the sorry state of airline competition in this country.
Morning markets
Global markets advanced modestly on optimism that U.S. rate cuts could start next month after the release of Federal Reserve minutes yesterday and as central bankers gather at the Jackson Hole Symposium starting today. Wall Street futures pointed higher, while TSX futures were flat.
Overseas, the pan-European STOXX 600 was up 0.44 per cent in morning trading. Britain’s FTSE 100 gained 0.09 per cent, Germany’s DAX added 0.29 per cent and France’s CAC 40 rose 0.22 per cent.
In Asia, Japan’s Nikkei closed 0.68 per cent higher, while Hong Kong’s Hang Seng rose 1.44 per cent.
The Canadian dollar traded at 73.61 U.S. cents.