TD Bank price targets and outlooks have been static in spite of investor and analyst surprise at Thursday’s announcement that 32-year TD veteran Raymond Chun would replace CEO Bharat Masrani next April.
The announcement of a CEO succession plan had been expected, but the choice of Chun, most recently the bank’s head of Canadian personal banking, went off-script from a belief TD’s board of directors would choose an outsider to turn the page from the lender’s costly anti-money laundering (AML) issues in the U.S.
“We had anticipated that TD would make changes to its senior leadership team due to the ongoing [U.S. Bank Secrecy Act]/AML concerns and hence we are not surprised by Mr. Masrani’s retirement,” RBC Dominion Securities analyst Darko Mihelic wrote in a Thursday evening note to investors, “but we are surprised that Mr. Chun was chosen to be the next CEO.”
Scotia Capital analyst Meny Grauman similarly notes that Chun “is certainly not the ‘outsider’ candidate that most investors had expected.” Grauman’s note characterized Scotia’s overall reaction as “mixed” while suggesting the CEO change would nonetheless be a “positive catalyst” for TD shares. Mihelic’s note offered “positive” sentiment but a more circumspect analysis.
“We suggest that it is too difficult to opine on the new management team today and there may yet be more turnover in TD’s immediate future.”
Chun will become TD’s chief operating officer and join the board of directors on November 1, TD says, before taking over from Masrani as CEO on April 10, 2025. Masrani will remain an advisor to the bank until October 31, 2025.
Grauman says Chun is “a seasoned executive, and not directly tied to any of TD’s issues in the U.S., but he does have a relatively low profile on the Street.”
When Chun was pressed by BMO Capital Markets analyst Sohrab Movahedi on his qualifications in light of the AML challenges during a conference call about the succession plan on Thursday, he responded by outlining the high-level positions he has held, including president of TD Direct Investing, president and CEO of TD Insurance, and group head of TD’s wealth management and insurance division. Movahedi pushed further, asking him about the single biggest problem he had faced, but Chun brushed it off.
“All I would say is, when you’re running these large, complex businesses that I run, you know, running into complexity and dealing with regulators and mapping out complex strategies as we move forward has all been sort of in my experience,” he said. “And so, early days, and I look forward to sharing more with all of you in the days and weeks and months to come.”
TD says it expects the AML problems to be resolved by year end. It has set aside some US$3 billion for penalties related to a U.S. investigation into alleged money laundering activities involving Chinese drug traffickers.
Mihelic notes that the penalties are expected to be “significant and costly,” but that RBC “believes TD can manage its way through it and still provide solid relative growth over the foreseeable future.”
“Longer term, Mr. Chun may need to change TD’s culture and make some big strategic decisions regarding its U.S. businesses,” Mihelic wrote.
“While these longer-term issues are important, we do not believe they will be very relevant to TD’s stock price performance for the next 12–18 months.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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