Portfolio manager says ‘steer clear’ of TD for now after bank cuts guidance

Grant White, portfolio manager and investment advisor with iA Private Wealth, told BNN Bloomberg that TD’s disappointing fourth quarter results were not surprising given the challenges Canada’s second largest lender has faced over the past year.

“This highlights the year that TD has had… we’ve been feeling negatively about TD this whole time,” he said in a Thursday interview.

“I know a lot of people have been looking at this as perhaps a value opportunity, but I think this earnings report and the language that’s being used is exactly why we stayed away from this company as an investment option over the last year.”

TD said in its fourth quarter earnings release on Thursday that it’s suspending its medium-term financial targets for earnings growth, return on equity and operating leverage as the bank reviews its overall strategy.

The bank’s incoming CEO and current COO Raymond Chun told analysts on a conference call that TD is looking at its “business mix, including profitability and risk-adjusted return on capital, and where we need to invest and divest to improve,” Bloomberg News reported on Thursday.

In addition to the guidance cut, TD missed estimates in the quarter, earning $1.72 per share on an adjusted basis, lower than the $1.83 average estimate of Bloomberg-tracked analysts. TD shares were down more than five per cent in Thursday afternoon trading.

The stock is down nearly 14 per cent since early October when U.S. authorities announced they were fining the bank more than US$3 billion after it pleaded guilty to charges related to money laundering.

White said that TD has a long way to go when it comes to rebuilding moral and investor trust in the wake of the scandal.

“When you go through issues that they’ve gone through… where you get these systemic issues that go from one level, and it seems like a very baseline level, but then it goes right up through the top, you have to wonder where those things end up,” he said.

“They’re going to try to earn (trust) back but it’s going to be a process and it’s going to be a while, so this is one that I would steer clear of for a while as an investor because we just don’t know how far it goes, we don’t know how long it’s going to take and there’s a lot of work to do there.”

Over the long term, White said he believes the bank will be “fine in the end,” but added that he’d like to see a clearer direction from TD’s new management team headed by Chun, who will take over from long-time chief executive Bharat Masrani in April.

“In the short term I expect this to be a bumpy ride for TD but at some point, this does become a value opportunity, at some point this bank turns it around,” he said.

“Do I see that happening in the next three to six months? Probably not, but sometime towards the end of 2025, I start to think that TD is going to be back on the rise again.”

With files from Bloomberg News

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