Paul Bagnell

Anchor

Follow|Archive

The recent anonymous claims of aggressive sales tactics by alleged TD employees triggered a wave of negative headlines for Toronto-Dominion Bank. This is bound to figure prominently when top bank executives meet with shareholders at TD’s annual general meeting Thursday in Toronto.

For analysts and investors, the question facing TD is simple: Is this another Wells Fargo moment?

The scandal is over reports by the CBC that alleged front-line employees at the bank have been pressured into acting against the best interests of TD customers. In order to achieve aggressive sales targets, the CBC alleged, employees have pushed clients into higher credit limits, higher-fee accounts and investment products that do not suit customers’ needs.

TD shares have swooned since then – down seven per cent since the news broke, and significantly underperforming the other bank stocks. And if you think allegations of mistreating customers won’t have a lasting effect on shareholder value, consider the case of Wells Fargo.

Since, Sept. 8 last year, Wells Fargo shares have underperformed an index of other regional bank stocks by 12 per cent. In January, the bank said new applications for credit cards and chequing accounts had plunged by more than 40 per cent each.

It must be noted that – as serious as the allegations against TD are – they don’t approach what happened at Wells Fargo, where employees created fake accounts and the scandal quickly claimed the job of the bank’s CEO, John Stumpf. But the two situations appear to share a common root – unrealistically aggressive sales targets being pushed on front-line employees.

At the AGM, TD CEO Bharat Masrani will be expected to signal a clear path forward for the bank. The scandal has arrived at a time when TD’s Canadian retail banking operations have recently underperformed its competitors. Investigating the allegations and cleaning up whatever mess TD finds will surely delay a comeback in that segment.

John Aiken, an analyst at Barclays Capital, believes TD shares will underperform “until an official investigation is concluded.”

National Bank Financial Analyst Gabriel Dechaine sees it the same way. He has cut his target price on TD to $69 from $74, citing “a cloud of controversy that could depress TD’s multiple for several months.”

Here’s what else to watch for at the TD Bank AGM:

• The big U.S. banking business. With rates rising and the economy picking up in the U.S., TD’s huge network of U.S. locations is in the spotlight more than ever. The past two times TD has reported results, however, the U.S. results have been spotty. Anything executives have to say about the business climate there will be of interest.
• Did loan losses peak in 2016? If so, earnings at TD may get a nice push this year as provisions decline.