Author: train2invest Admins

A US$2.6-billion provision that Toronto-Dominion BankTD-T +0.47%increase recorded to cover expected regulatory fines wiped out the lender’s fiscal third-quarter profits, leaving TD with a small loss as it works to fix lapses in its anti-money laundering program.

The bank lost $181-million, or 14 cents per share, in the quarter that ended July 31. That compared with profit of $2.88-billion, or $1.53 per share, in the same quarter last year.

Adjusted to exclude the massive regulatory provision and other, smaller one-time items, TD said its profit was $3.65-billion. That was effectively unchanged year over year.

On an adjusted basis, the bank earned $2.05 per share, which fell just short of the $2.07 analysts had expected, according to data from the London Stock Exchange Group.

TD kept its quarterly dividend unchanged at $1.02 per share.

TD is the first of Canada’s large banks to report third-quarter earnings, with its five largest rivals set to release results from Aug. 27 to 29.

The bank set aside higher loan loss provisions of nearly $1.1-billion, anticipating that more customers could default on loans as high interest rates and a slowing job market put pressure on households and businesses. That matched analysts’ expectations, but was up 40 per cent from $766-million in the same quarter last year.

TD also recorded a $110-million restructuring charge stemming mostly from employee severance costs and efforts to trim its expenses on real estate.

The bank’s results were “weaker than expected,” said RBC Dominion Securities Inc. analyst Dark Mihelic, “but not that bad.”

“We have a neutral view” of TD’s third-quarter results, he said in a note to clients.

TD has been mired in multiple U.S. regulatory and criminal probes over serious deficiencies in its defences against money laundering. The bank is now bracing for a total fine of more than US$3-billion ($4-billion), and is expecting to reach a combined settlement with multiple regulators, including fines and other penalties, by the end of the calendar year.

Against that backdrop, TD’s U.S. retail banking division reported a loss of $2.28-billion, driven by the large provision against fines. Adjusted profit was $1.29-billion, down $77-million from a year earlier as higher loan loss provisions and costs modestly outpaced rising revenue.

Profit from wealth management was roughly unchanged year over year at $430-million. Revenue rose 13 per cent, but so did costs, which included higher bonus pay for employees.

Retail banking in Canada fared better, with profit up 13 per cent to $1.87-billion, as revenue increased 9 per cent to $5-billion. Loan volumes increased 6 per cent, but profit margins on those loans decreased.

Profit from TD’s wholesale division, which includes its TD Cowen division in the U.S., was $317-million, up $45-million from the third quarter last year. The bank had higher revenue from trading, lending and fees from advisory and underwriting work.

TD’s capital levels declined, with a common equity Tier 1 ratio – an important measure of the bank’s resilience and ability to absorb losses – of 12.8 per cent. After the fiscal fourth quarter began in August, the bank sold shares in The Charles Schwab Corp. worth more than $2-billion to bolster its capital levels, helping offset the effect of its large regulatory provisions.

Toronto-Dominion Bank TD-T +0.47%increase is setting aside an additional US$2.6-billion to cover looming penalties in the United States over failures in the bank’s anti-money-laundering program – systemic breaches that have mired the institution in damaging criminal and regulatory probes.

TD is now bracing for a historic fine of more than US$3-billion ($4-billion), including a provision of US$450-million that it earmarked in April, to settle investigations from multiple U.S. regulators.

The total potential fine would deal a landmark blow to Canada’s second-largest bank. TD has the financial resources to absorb it, but the hit is severe enough that the bank was compelled to sell shares it owned in another major financial institution to ensure that its capital reserves stay above a minimum threshold set by Canada’s banking regulator.

It would be the largest penalty that a Canadian bank has paid in the United States, and is believed to be the second-largest U.S. regulatory penalty levied against any bank over similar issues.

The additional provision reflects “the bank’s current estimate of the total fines related to these matters,” TD said in a statement released Wednesday. The bank is expecting “a global resolution, which will include monetary and non-monetary penalties,” and anticipates that it “will be finalized by calendar year end.”

TD will record the provision as part of its fiscal third-quarter results, which will be released on Thursday.

The bank has been wrestling with the fallout from lapses in its anti-money-laundering (AML) controls for well over a year, and is still negotiating with U.S. regulators, including the Office of the Comptroller of the Currency (OCC), the Financial Crimes Enforcement Network (FinCEN) and the U.S. Department of Justice.

“We recognize the seriousness of our U.S. AML program deficiencies, and the work required to meet our obligations and responsibilities is of paramount importance to me, our senior leaders, and our boards,” chief executive officer Bharat Masrani said in a statement.

TD’s AML issues are emblematic of broader problems that have dogged the bank. It has contributed to an exodus of senior TD leaders and raised questions about a perceived erosion in the bank’s prized culture. And it has fuelled speculation that the bank is struggling with its succession plan for Mr. Masrani, the CEO who is shouldering responsibility for most of the bank’s woes.

TD Bank’s dirty laundry: Inside the cultural shift that seeded a money laundering crisis, succession woes and a leadership exodus

The bank has already spent at least $500-million on fixing its AML systems, and made a flurry of personnel changes this summer. Chief compliance officer Monica Kowal departed and the bank recruited a respected expert on preventing financial crime, Stuart Davis, to advise chief risk officer Ajai Bambawale.

As the U.S. AML investigations dragged on, shrouded in secrecy, TD’s stock price suffered from uncertainty about how harsh the penalties would be. Over that span, TD has effectively lost the premium valuation that its shares used to command, and its performance has trailed its Big Six bank peers.

The AML issues also wiped out the bank’s most ambitious expansion plan under Mr. Masrani’s 10-year tenure. In May, 2023, the bank called off its proposed US$13.4-billion takeover of Tennessee-based First Horizon Corp. FHN-N +0.06%increase after TD was unable to win timely approvals from U.S. regulators. The deal would have made it the sixth-largest bank in the U.S. by assets and bolstered its presence in fast-growing southeastern U.S. states.

Since then, damaging details have emerged about the extent of the lapses in TD’s controls, and the bank was ensnared in America’s efforts to fight a global drug war. TD featured prominently in an investigation into a criminal ring that laundered US$653-million worth of drug money through financial institutions in New York, New Jersey and Pennsylvania – including several of TD’s branches.

Additionally, separate criminal complaints allege that two former TD employees who worked at branches in New Jersey and Florida accepted bribes and helped to shuttle millions of dollars in drug-trafficking proceeds from the U.S. to Colombia, in some cases through accounts linked to shell companies.

How TD Bank got caught up in the global drug war, helping to launder hundreds of millions of dollars

A US$3-billion penalty for the bank would exceed the predictions that most analysts had already incorporated into their financial models, but is lower than the US$4-billion they would have considered a critical threat to the bank’s capital.

It would eclipse a US$2-billion settlement with domestic and U.S. authorities that Denmark’s Danske Bank DNKEY +0.07%increasepaid over its dealing with alleged Russian criminals at its branches in Estonia, and US$1.9-billion that British-based HSBC Holdings PLC HSBC-N +1.10%increase paid to settle allegations it laundered money for Colombian and Mexican drug cartels.

Only Wells Fargo & Co.’s WFC-N -1.23%decrease US$8-billion in settlements over a four-year period, which ended in 2022, would be larger, after regulators alleged that its employees created false accounts for the bank’s clients.

“While the market now has certainty surrounding the amount of the charge, this is offset by the fact that it is larger than expectations and the impact this has on capital,” said John Aiken, an analyst at Jefferies Securities Inc., in a note to clients on Wednesday.

TD said it has sold 40.5 million shares that it owned in The Charles Schwab Corp. SCHW-N -0.42%decrease to shore up its capital reserves. TD’s stake in Schwab, a leading discount brokerage, falls to 10.1 per cent from 12.3 per cent. The bank agreed not to sell any more of its stake for 45 days, and said Wednesday that it has “no current intention to divest additional shares.”

The bank’s common equity Tier 1 capital ratio – a key measure of its financial resilience – will be 12.8 per cent as of July 31, but is set to drop by a further 35 basis points in the fourth fiscal quarter, which ends Oct. 31. But the sale of Schwab shares will add back 54 basis points of capital, helping fill the hole the provision creates. (100 basis points equal 1 percentage point).

Investors who have been waiting for more clarity on the scope of TD’s punishment over AML issues will take some comfort that the bank believes it knows the upper limit for expected fines and provided a timeline for some form of resolution – though regulators still control the timing of any settlement.

The lingering cloud that still hangs over TD’s future is the fear that it could face constraints on its U.S. business – from non-monetary penalties handed down by regulators – until remediation of its AML problems is fully resolved.

“We still do not know if there will be any restrictions on TD’s future growth in the U.S. and note that the [Schwab] sale does impede future earnings,” Mr. Aiken said.

With reports from Andrew Willis and Tim Kiladze

 Published: 8/21/2024 3:18 PM ET | 

Despite data showing a big drop in U.S. crude inventories in the week ended August 16th, oil prices fell to a seven-month low on Wednesday amid concerns about the outlook for demand.

Data from the Labor Department saying the U.S. economy added far fewer jobs than originally reported in the year through March presumably hurt investor sentiment.

Concerns about economic slowdown in China and weak outlook for demand from the nation also weighed on oil prices.

West Texas Intermediate Crude oil futures for October ended down $1.24 or about 1.7% at $71.93 a barrel.

Brent crude futures dropped to $76.05 a barrel, down $1.15 or about 1.49% from the previous close.

Data from the Energy Information Administration (EIA) showed crude inventories in the U.S. fell by 4.6 million barrels last week, after rising by 1.4 million barrels a week earlier. Oil inventories were expected to drop by 2.8 million barrels.

At 426.0 million barrels, U.S. crude oil inventories are about 5% below the five-year average for this time of year, the EIA added.

The report said motor gasoline inventories also fell by 1.6 million barrels last week and are about 3% below the five-year average for this time of year.

Distillate fuel inventories, which include heating oil and diesel, also slumped by 3.3 million barrels last week and are about 10% below the five-year average for this time of year.

Meanwhile, on the geopolitical front, the United States is pushing for a “decisive moment” for ceasefire negotiations between Israel and Hamas, but a breakthrough appears elusive.

U.S. crude stocks, gasoline and distillate inventories all fell by more than expected in the week ending August 16 as demand and exports rose, the Energy Information Administration (EIA) said on Wednesday.

Crude inventories fell by 4.6 million barrels to 426 million barrels in the week ended August 16, the EIA said, compared with analysts’ expectations in a Reuters poll for a 2.7 million-barrel draw.

Oil prices rose to session highs following the larger-than-anticipated decline in inventories, but eased shortly after on weaker U.S. economic data.

Brent futures were up about 5 cents to $77.22 a barrel at 11:05 a.m. EDT (1505 GMT), while U.S. futures were at $73.09 a barrel, down roughly 7 cents.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 560,000 barrels.

Net U.S. crude imports rose last week by 78,000 barrels per day, while exports rose by 289,000 bpd to 4.05 million bpd, EIA said.

“A tick higher in both refinery runs and exports has encouraged a draw to crude inventories, while buoyant implied demand for gasoline and distillates has helped to round out a trio of draws as we fast approach the finale of summer driving season,” said Matt Smith, an analyst for ship tracking firm Kpler.

Refinery crude runs rose by 222,000 barrels per day in the week ended August 16, and utilization rates rose by 0.8 percentage points in the week to 92.3 per cent, the EIA said.

U.S. gasoline stocks fell by 1.6 million barrels in the week to 220.6 million barrels, the EIA said, compared with analysts’ expectations in a Reuters poll for a 933,000 barrel draw.

Product supplied for gasoline, a proxy for demand, was up 148,000 bpd week-over-week to 9.19 million bpd.

Gasoline stocks on the U.S. Gulf Coast are now at their lowest seasonal level since 2019.

Distillate stockpiles, which include diesel and heating oil, fell by 3.3 million barrels in the week to 122.8 million barrels, versus expectations for a 215,000 barrel drop, the EIA data showed.

Both U.S. gasoline and heating oil futures were up following bigger than expected draws in stockpiles. Gasoline futures turned negative along with U.S. crude in the hour following the report.

A gold rush is here. The precious metal hit an all time high this week.

The spot price for gold closed Tuesday above $2,514, according to data from FactSet. That’s the highest closing price recorded for the commodity to date. Here’s what you need to know.

What is the price of gold today?

The spot price of gold closed Tuesday at just over $2,514 per Troy ounce — the standard for measuring precious metals, which is equivalent to 31 grams. That would make a gold bar or brick weighing 400 Troy ounces worth more than $1 million today.

This week’s record high means that the price of gold has climbed hundreds of dollars per Troy ounce over the last year. Tuesday’s price is up nearly $620 from this time in 2023.

Why is the price of gold going up?

There are a few factors behind the recent gains.

Interest in buying gold often comes at times of uncertainty — with potential concerns around inflation and the strength of the U.S. dollar, for example, causing some to look for alternative places to park their money. Gold also saw a surge in the early days of the COVID-19 pandemic.

Giovanni Staunovo, a commodity analyst at UBS Global Wealth Management, said the main drivers of recent gold gains have been the weaker U.S. dollar and expectations that the Federal Reserve will cut its benchmark interest rate next month. With particular concern focused on the health of the job market, all eyes will be on a Friday speech from Fed Chair Jerome Powell in Jackson Hole, Wyoming.

Another factor is strong demand from central banks — which is currently well-above the five year average, notes Joe Cavatoni, senior market strategist at the World Gold Council. Cavatoni says this “reflects heightened concern with inflation and economic stability.” He also pointed to ongoing geopolitical tensions, among other factors, that have caused some to buy more gold recently.

The wars in Ukraine and Gaza have notably fueled uncertainty around the world. And numerous countries, including the United States, are also in the midst of a tumultuous election year — which could prove crucial to future economic policy.

Is gold worth the investment?

Advocates of investing in gold call it a “safe haven,” arguing the commodity can serve to diversify and balance your investment portfolio, as well as mitigate possible risks down the road. Some also take comfort in buying something tangible that has the potential to increase in value over time.

Staunovo’s team at UBS forecasts the price of gold will reach $2,600 by this year’s end — and $2,700 by mid-2025. UBS sees lower U.S. interest rates and the weaker dollar supporting inflows into gold ETFs, or exchange traded funds, consequently boosting investment demand.

Still, future gains are never promised and not everyone agrees gold is a good investment. Critics say gold isn’t always the inflation hedge many say it is — and that there are more efficient ways to protect against potential loss of capital, such as through derivative-based investments.

The Commodity Futures Trade Commission has also previously warned people to be wary of investing in gold. Precious metals can be highly volatile, the commission said, and prices rise as demand goes up — meaning “when economic anxiety or instability is high, the people who typically profit from precious metals are the sellers.”

If you do choose to invest in gold, the commission adds, it’s important to educate yourself on safe trading practices and be cautious of potential scams and counterfeits on the market.

U.S. job growth during much of the past year was significantly weaker than previously reported, according to new data published Wednesday.

The Bureau of Labor Statistics revised down its total tally of jobs created in March by 818,000 as part of its preliminary annual benchmark review of payroll data.

It marks the largest downward revision since 2009, and suggests the labor market began losing steam earlier than initially thought.

“The labor market appears weaker than originally reported,” said Jeffrey Roach, chief economist at LPL Financial. “A deteriorating labor market will allow the Fed to highlight both sides of the dual mandate and investors should expect the Fed to prepare markets for a cut at the September meeting.”

The revised data is mostly derived from state unemployment tax records that employers are required to file. The figure may be updated when the government releases the final figure in February 2025.

https://www.cnbc.com/2024/08/21/nonfarm-payroll-growth-revised-down-by-818000-labor-department-says.html

Canada’s annual inflation rate fell to 2.5 per cent in July, largely driven by lower prices for travel tours, passenger vehicles and electricity.

It was the lowest inflation rate since March, 2021, and matched analyst expectations. It also brings consumer price growth even closer to the Bank of Canada’s 2-per-cent target.

The next Bank of Canada interest rate announcement is on Sept. 4.

Gold prices traded lower on Monday but held about $2.500 per ounce amid optimism that cooling U.S. inflation would kick off a cycle of interest rate cuts.

A weaker dollar, heightened Middle East tensions and lingering concerns over China’s property market helped limit bullion’s losses to some extent.

Spot gold dipped 0.3 percent to $2,501.06 per ounce while U.S. gold futures were marginally higher at $2,539.50

The dollar began the week on a weak note after a couple of Fed officials said its time to adjust borrowing costs.

In an interview with the Financial Times published on Sunday, San Francisco Federal Reserve Bank President Mary Daly noted that it is time to consider adjusting borrowing costs.

Separately, Chicago Fed President Austan Goolsbee stated in a CBS interview that maintaining high rates for too long might create a problem on the employment side of the Fed’s mandate.

Investors now look ahead to the release of minutes from the Fed’s most recent meeting on Wednesday and Federal Reserve Chair Jerome Powell’s Jackson Hole, Wyoming, speech on Friday, for more clarity on the possibility of easing in September.

On the geopolitical front, the U.S. is pushing for a deal between Israel and Hamas to end the war on Gaza, calling it ‘maybe the last opportunity to get the hostages home’.

Oil prices fell on Monday to extend losses from the previous session amid concerns about the outlook for oil demand from China and U.S.-led efforts to secure a cease-fire in the 10-month-old Middle East conflict.

Brent crude futures fell 0.8 percent to $79.08 a barrel, while WTI crude futures were down 1 percent at $74.81.

China’s economic activity data released last week proved to be a mixed bag. Also, data showed China’s oil refinery output declined for the fourth consecutive month in July, reflecting a slowdown in fuel demand.

Investors also kept a close eye on the developments in the Middle East as the U.S. pushed for a deal between Israel and Hamas to end the war on Gaza, calling it ‘maybe the last opportunity to get the hostages home’.

Israel has expanded its ground invasion of Gaza as U.S. Secretary of State Antony J. Blinken warned against attempts to derail the Gaza ceasefire process.

Blinken met with officials in Israel today at what he called “a decisive moment” for diplomatic negotiations aimed at reaching a cease-fire in Gaza and securing the release of hostages.

For the first time, Canada’s two main railway companies – Canadian National Railway and Canadian Pacific Kansas City – are on the verge of a simultaneous labour stoppage that could inflict billions of dollars’ worth of economic damage.

Why are both companies poised to stop?

Contract talks between the Teamsters union and the companies usually take place a year apart, but in 2022, after the federal government introduced new rules on fatigue, CN requested a year-long extension to its existing deal rather than negotiate a new one.

This meant both companies’ labour agreements expired at the end of 2023 and talks have been ongoing since. As a result, for the first time, the failure of negotiations would halt the vast majority of the Canadian freight rail system.

The Teamsters represent around 10,000 members who work as locomotive engineers, conductors, train and yard workers and rail traffic controllers at the two companies in Canada.

What is likely to happen next?

The companies say they will start locking out workers in the early hours of Thursday if they cannot reach a deal, while the union says it is ready to call a strike for that day. CPKC has already given formal notice of a lockout.

CPKC, created in 2023 through a merger of Canadian Pacific and Kansas City Southern, has a U.S. and Mexican network which it says will operate normally. CN also says trains on its U.S. network will run.

That said, a strike will still lead to shipment disruptions south of the border. Both rail operators and some of their U.S. competitors have begun to refuse certain cross-border cargoes that would rely on the CN and CPKC networks.

CPKC has said it would halt new rail shipments originating in Canada, and new U.S. shipments destined for Canada starting Aug. 20, if talks with the Teamsters union in Canada fail to progress.

The railways move grain, autos, coal and potash, among other shipments.

What are the sides arguing about?

The union says CPKC wants “to gut the collective agreement of all safety-critical fatigue provisions,” meaning crews will be forced to stay awake longer, boosting the risk of accidents.

CPKC says its offer maintains the status quo for all work rules, “fully complies with new regulatory requirements for rest and does not in any way compromise safety.”

The Teamsters say CN wants to implement a forced relocation provision, which would see workers ordered to move across Canada for months at a time to fill labour shortages.

CN says it has made four offers this year on wages, rest, and labour availability while remaining fully compliant with government-mandated rules overseeing duty and rest periods.

What can the federal government do?

Under article 107 of the federal labour code, Labour Minister Steven MacKinnon has broad powers and can order the sides to enter binding arbitration. In 2023, his predecessor, Seamus O’Regan, issued such an order to end a dockworkers strike in British Columbia. In that case, unlike the current rail dispute, the sides had largely agreed on the outlines of a deal.

MacKinnon rejected a request last week by CN for binding arbitration, urging the sides instead to put in more effort at the negotiating table.

What happens if the union strikes?

If the Teamsters call a strike, the government can introduce back-to-work legislation forcing them to resume work. The previous federal Conservative government did that in 2012 to end a walkout by Canadian Pacific workers.

The current Liberal government though, has shown little interest in such a move in past disputes, preferring the sides to focus on negotiations. A complicating factor is that Prime Minister Justin Trudeau’s government is being kept in power by the left-leaning New Democrats, who have traditionally enjoyed strong union support.