If you ever needed proof that nothing heals financial wounds like a fat stack of cash, look no further than TD Bank. Canada’s second-largest lender just announced it’s nuking its entire 10.1% stake in Charles Schwab worth nearly $15.4 billion, as part of a strategic review following one of the most embarrassing regulatory smackdowns in banking history.

(Source: Giphy) 

Now ICYMI, TD got caught up in a $3 billion anti-money laundering fiasco last year, making it the largest U.S. bank ever to plead guilty to violating federal law. And now, with an asset cap of $434 billion shackling its U.S. ambitions, TD is pivoting hard, dumping Schwab, and throwing billions into share buybacks to keep investors happy. 

What’s even more interesting here is that, TD is Schwab’s biggest shareholder, a stake it picked up when Schwab bought TD Ameritrade for $26 billion in 2020. Now, with regulators breathing down its neck, TD’s new CEO Raymond Chun—who just took over this month after the last guy conveniently retired early—is pulling the ripcord.

(Source: Reuters) 

Schwab, probably realizing this was coming, agreed to buy back $1.5 billion worth of shares from TD in a private transaction, because nothing says "we're still cool, right?" like a quiet, controlled exit. Meanwhile, Schwab’s stock dropped 2% on the news, because naturally, getting ditched by your biggest shareholder doesn’t exactly scream confidence. Meanwhile, TD Bank popped 3.59% on the news as analysts estimate that this will free up C$10-12 billion in capital for the bank—which sounds impressive until you remember that this is a bank that just got its U.S. expansion dreams body-slammed prior to the move.

So given this, is TD abandoning the U.S. dream now? For years, TD has been obsessed with expanding its U.S. footprint, even trying (and failing) to buy First Horizon for $13.4 billion before the money laundering probe went public. Now, instead of growing, TD is in survival mode, cutting loose assets, and figuring out how to operate under a regulatory straightjacket.

(Source: CNBC) 

If this is just a temporary retreat, expect TD to sit on its war chest, wait for the heat to die down, and try a new U.S. strategy in a few years. But if this is a full-blown retreat, they’ll start offloading more U.S. assets and shift focus back to Canada, where they can run the show without Uncle Sam breathing down their neck.

In the end, TD can call this a “strategic review” all it wants, but this is a fire sale to save itself. They didn’t dump Schwab because they wanted to—they dumped it because they had to. So while investors might be cheering the short-term cash injection now, in the long-run, TD’s U.S. ambitions just took a massive L, and no amount of buybacks can change that.

(Source: Giphy) 

In the meantime, keep an eye out on this story to see what comes next. Especially since the regulators aren’t going to be doing much “regulating” these days (per my morning CFPB article). As always, stay safe and stay frosty, friends! Until next time…

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Stocks.News does not hold positions in companies mentioned in the article.