Charles Schwab Shares Drop as TD Reconsiders Stake

Investing.com -- Charles Schwab (NYSE: SCHW) shares fell by 2.3% after Toronto-Dominion Bank (TD) announced it would review its 10% stake in the company as part of a broader strategic assessment following a money laundering scandal in the U.S. TD, the largest shareholder of Charles Schwab, is evaluating various options due to regulatory restrictions on expanding its U.S. retail banking operations.

The review was initiated after TD suspended its medium-term financial targets in December and announced a strategic and spending review. Raymond Chun, the new CEO set to begin in April, confirmed at the RBC Capital Markets Canadian Bank CEOs conference in Toronto that the fate of Schwab's shares is part of the capital allocation review.

Chun emphasized that TD's ownership of Schwab shares is separate from its agreement with Schwab regarding sweep deposit accounts for customers, and that it would continue regardless of the outcome of the strategic review. Highlighting the bank's commitment to its U.S. operations, Chun noted that TD is among the top ten banks in the country by customer count.

Previously, TD had reduced its stake in Charles Schwab in August, selling 40.5 million shares to partially finance the costs associated with penalties from money laundering investigations in the U.S. The bank's relationship with Schwab began in 2020, when it sold its stake in TD Ameritrade Holding Corp. to Schwab.

Chun also mentioned TD's efforts to restructure its U.S. balance sheet, which aims to complete by the end of the 2025 fiscal year, including exits from certain credit portfolios and repositioning bond assets. He also stated that the bank is focused on improving anti-money laundering controls, including the recent approval of an observer by U.S. authorities to oversee its efforts.

Despite the challenges TD faces and their potential impact on stock performance in 2024, some analysts remain optimistic about the bank's recovery prospects following the resolution of money laundering investigations in the U.S. The bank's capital markets division, wealth and insurance segment, along with its individual and commercial banking operations in Canada, are seen as potential drivers of future growth.