(Bloomberg) -- Toronto-Dominion Bank moved up the start date for its new chief executive officer, Raymond Chun, by two months and slashed executives’ pay in the wake of its historic and costly money-laundering scandal.
The bank is also overhauling its board, which has faced criticism for its oversight of the lender’s US compliance program after it failed to stop drug cartels and other criminals from laundering hundreds of millions of dollars through several of Toronto-Dominion’s American branches for years.
Five long-serving directors will leave the board and the chair, Alan MacGibbon, will step down and retire as a director by the end of the year, Toronto-Dominion said in a statement Friday. The lender said that 41 executives, including many who have already left the bank, saw their bonus pay slashed last year, resulting in total reductions of C$30 million ($21 million) over the anti-money-laundering lapses.
“TD has adjusted executive compensation to reflect the seriousness of the US AML failures, the associated costs to the bank and the limitations imposed on the US retail business,” according to the statement.
Longtime executive Chun, who has run TD’s Canadian retail banking division, its wealth-management and insurance unit, and its online brokerage, will now take over from Bharat Masrani on Feb. 1 instead of April 10.
“Ray has moved quickly and decisively to launch a review of our strategy, operations and investments, and has engaged with customers, clients and colleagues across the bank,” MacGibbon said in the statement. “We are excited to have Ray take the helm.”
Toronto-Dominion shares were up 2.9% to C$81.94 at 11:36 a.m. in Toronto.
The news is “probably one of the first tangible steps to a long path toward a turnaround,” John Aiken, director of Canadian research at Jefferies Financial Group Inc., said in an interview. It’s a bid to “turn the page” for the bank, he said, leaving Masrani and the money-laundering mess in the background. “This allows Ray to step forward, front and center, and make this his bank.”
The investing community is hoping for an update on Toronto-Dominion’s strategy as soon as possible and ideally earlier than the investor day planned for the second half of the year, Aiken said.
Chun, who has been chief operating officer since September, was in control during Toronto-Dominion’s most recent analyst call in December and also spoke at Royal Bank of Canada’s annual bank CEO conference earlier this month. In hindsight, Aiken said, this signaled a change in the succession timeline was likely.
“He won some very strong points in terms of his messaging, his presentation,” Aiken said.
Masrani’s Pay
Masrani, who has been chief executive officer of TD since 2014, received no variable compensation beyond his base salary last year, reducing his overall pay to C$1.5 million, down from C$13.3 million a year earlier, according to the statement. The cuts to Masrani’s pay account for more than a third of the total reductions to executive compensation.
It’s a striking difference from what Toronto-Dominion’s board said in last year’s annual proxy circular published in March, when the bank announced that Masrani himself volunteered to take a C$1 million pay cut in recognition of the US regulatory issues.
At that time, the board said Masrani had “demonstrated excellent personal leadership and performance through a challenging year.” Investors were already raising questions about whether the board would replace Masrani, but it would be several more months before his successor was named.
Chun has been leading a review of strategy at the company, which suspended its medium-term financial targets in December. Just two months earlier, Canada’s No. 2 lender pleaded guilty to a series of charges brought by US authorities over its money-laundering failures.
Costly Probes
The bank agreed to pay almost $3.1 billion in fines as part of the settlement with law enforcement and regulators, but the scandal has cost TD far more than that.
It paid a $200 million breakup fee in 2023 when it was forced to call off its $13.4 billion acquisition of Memphis, Tennessee-based First Horizon Corp. after it became evident that regulators would not approve the transaction amid the money-laundering probes.
Toronto-Dominion also spent $350 million to improve its compliance programs last year and said it expects to spend an additional $500 million on those efforts this year.
And the lender, which launched an ambitious US expansion about 20 years ago and became one of the 10 largest banks in the country, is now barred from expanding its American retail business beyond its current size.
To stay under the regulatory limit on its assets, Toronto-Dominion is exiting some US lending businesses and repositioning that division’s securities portfolio, changes the bank has said will reduce its earnings and lead to one-time costs of as much as $1.5 billion after taxes.
Board Changes
Amy Brinkley, Colleen Goggins, Karen Maidment, Claude Mongeau and Brian Ferguson will leave the board after the 2025 annual shareholders’ meeting, scheduled for April 10.
Four new directors — two Canadians and two Americans, most with strong backgrounds in compliance and risk — will stand for election at the meeting: Elio Luongo, former CEO of KPMG Canada; Nathalie Palladitcheff, former CEO of Ivanhoé Cambridge, the real estate portfolio of CDPQ; Frank Pearn, former global chief compliance officer of JPMorgan Chase & Co.; and Paul Wirth, former deputy chief financial officer for Morgan Stanley.
Toronto-Dominion also will change the leadership of four board committees and has put new limits on director term extensions, cutting them to two years from five after an initial 10-year term.
MacGibbon, who has been a director for more than a decade, took over as chair just last year, succeeding Brian Levitt, who had been a board member since 2008.
TD was required to conduct a review of its corporate-governance program under its settlement with the US Federal Reserve over the money-laundering failures.
“It wasn’t just management that needed to change,” Aiken said, “It was the top of the house as well.”
(Updates with share price, analyst comment and additional details beginning in second paragraph.)
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