Post by
HoneyBadger77 on May 03, 2024 1:12pm
RBC Analysis Re: TD
RBC analysis has already considered all the doom and gloom (as of April 30th) and still has TD rated as an Outperform and an $87 CAD PT. But hey what do they know...they're only in the Banking Business!
In particular, have a read of the last line in the last paragraph.
April 30, 2024
The Toronto-Dominion Bank
An initial provision for its AML deficiencies
TSX: TD | CAD 81.67 | Outperform | Price Target CAD 87.00
Sentiment: Negative
On April 30, 2024, TD announced that it has taken an initial US$450 million pre-tax provision in connection with discussions with one of three U.S. regulators for issues surrounding its Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) compliance program in the U.S. We leave our estimates unchanged for now, but we calculate that the provision would have a negative $0.26 per share impact on our Q2/24 reported EPS estimate and a negative 10 bps impact on our Q2/24 CET 1 ratio estimate decreasing it to 13.6% (all else equal), but this would still be the highest ratio we estimate in the group for the quarter. Please note, we expect the “final” impact on risk-weighted assets (RWA) to be slightly higher because once the fines are finalized and assessed, TD's operational RWA will likely rise, and this initial CET 1 impact is the pure after-tax impact of the initial provision assuming a 24% tax rate.
This is an initial provision that TD is recording in Q2/24 as TD’s discussions with the U.S. regulators remain ongoing and the bank expects additional monetary penalties. We believe that a final penalty issued by the regulator(s) is likely to be larger and could come with additional conditions. There are four key aspects of an AML-related penalty that are most material to TD, in our view. They include: (1) size of the fine, (2) a monitorship (expensive, obtrusive, and likely to drag out the cleanup process), (3) an asset cap (a worst case scenario we do not currently expect), and (4) other business restrictions (cease and desist order(s) from pursuing acquisitions for example).
We continue to view TD's valuation as discounting something close to the worst case scenario. TD trades at approximately 9.9x our next 12-month core earnings estimate versus a 15-year average of 11.3x (and our next 12-month core EPS estimate includes the cost of the AML compliance program). TD's NTM P/E discount to its 15-year average P/E multiple of -1.4x is twice the average discount of the large Canadian banks we cover of -0.7x.
We view this announcement as negative because it does not provide clarity on all of our concerns but certainly suggests that the minimum cost of the problem is higher than the minimum estimated range (according to the Globe and Mail) has suggested. Nevertheless, as long as our worst case scenario is averted, we see significant upside potential for the stock relative to its peers once the full cost of the fine and non-monetary penalties are revealed.
______________________________________________________________________________
So a potential .26 cent reduction in the upcoming quarterly profit, on a RBC Q2 EPS estimate of $1.81, WOW, the sky really is falling...Lol. Considering that Canadian banks generally post quarterly profit in the $billions and if their a little short on profit they can just raise their banking fees to cover their losses.
I don't see this recent sell off as much more than a great buying opportunity for those with an investing time horizon longer than a few hours or days! Banks don't like to lose and being one of the BIG 3 in Canada, they won't lose, ....again just look at a 20 year chart.
DYODD.
HB77
Comment by
FiddyFiddyShot on May 03, 2024 1:17pm
"As of April 30th" - -Expect them to revise their stance in light of the new information coming out.
Comment by
lilbugger on May 04, 2024 9:58am
Seems too good to be true. Say the PT is $85 so $10 capital gain inside 12 months or 13.3% added to the 5.45% dividend that's almost a 19% return on a Canadian bank.WOW! Stick that in your TFSA and sit on it. GLTA