Embattled TD Bank eyes $14B raise in Schwab stake exit

Toronto-Dominion Bank expects to raise about $14 billion through the sale of its entire stake in Charles Schwab Corp. as part of a corporate overhaul in the wake of its historic US money-laundering settlement. 

Toronto-Dominion will sell 184.7 million shares of Schwab’s common stock, representing 10.1% economic ownership, it said in a statement Monday. Schwab has agreed to buy back $1.5 billion of its shares from TD.

Canada’s second-largest bank reached a settlement in October with the US Department of Justice and bank regulators over its failure to catch money laundering at several American branches. Toronto-Dominion agreed to pay almost $3.1 billion in fines and other penalties and last month said it was accelerating its chief executive officer-transition process, tapping Raymond Chun to step into the role two months earlier than initially planned.  

“As part of our strategic review, we have been evaluating capital allocation and have made the decision to exit our Schwab investment,” Chun said in the statement. 

Toronto-Dominion expects to generate about $14 billion in proceeds through the share sale, Chun told bank employees in an internal memo Monday morning seen by Bloomberg. “In just under five years, this investment has generated a very strong return, and we believe this is the right time to reallocate the capital,” he said in the memo.

The Canadian lender acquired its ownership stake in 2020 as part of a transaction to sell its interest in online brokerage TD Ameritrade Holding Corp. to Schwab. It sold 40.5 million Schwab shares in August, trimming its previous 12.3% stake to raise about $2.5 billion to help cover the cost of fines in the money-laundering probes. 

Toronto-Dominion said it plans to use C$8 billion of the proceeds to repurchase its stock, and will invest the balance of the proceeds in the company’s businesses.

A representative for Schwab declined to comment, citing regulatory reasons. 

Chun has previously said Toronto-Dominion’s ownership of Schwab shares is separate from its agreement with the firm to make sweep-deposit accounts available to Schwab clients. With sweep programs, uninvested cash in brokerage accounts is automatically transferred into higher-interest accounts.