So Bharat, I think we need to start off by talking about your AML issues in the U.S. I know you provided an update ahead of Q3, and you're limited in what you can talk about, but I thought maybe just given how big a subject this is in investors' minds, you could just give us an update on, you know, what can you tell us on this issue?
Firstly, you know, I, as I mentioned in our earnings call a couple of weeks ago, you know, we've been working hard on trying to get a global resolution regarding this matter in the U.S. And now I'm happy to report that, you know, we are through the tunnel. We can see light at the end, but we are not done yet. Our expectation is that we'll have a global resolution regarding this matter by our calendar year end. And, you know, as far as the financial penalties and fines are concerned, you know, we announced a provision of $2.6 billion in the quarter. In addition to that, the previous quarter, we took $450 million.
You know, our view is that that's our estimate of, you know, what this will cost to get this issue behind us from a fines and settlement perspective. In the meantime, you know, we are continuing to work on remediating the program. You know, we attracted brand-new leadership there, terrific individuals who have joined the bank. Hired hundreds of, you know, AML professionals who are now very much part of TD, invested in training, invested in new platforms, new data, infrastructure, and the remediation process is underway. Hopefully, you know, I will be in a position to give you more clarity, you know, when we come to the final global resolution.
Sticking to AML, I just wanted to ask, you know, as a professional manager with lots of experience, what lessons do you draw from this experience?
So, you know, we at TD, you know, we have a very strong risk culture foundation. You know, it's been there for many, many years. You know, we take that very seriously. And, you know, it's been a core strength of the bank over many years. But I think the big lesson is you can't take anything for granted, you know, including the culture and the foundation that you've built over many years. We had a situation here where some threat actors, bad actors, were able to exploit the bank, and we obviously, you know, regret that. You know, take...
Own it, take responsibility for it, and make sure that we do everything that we need to, to learn from that and to ensure that doesn't ever happen to the bank again. What are the key lessons? I think the specific areas, you know, it's easy in a bank of our size to sometimes you know not look at accountabilities as clearly as we should. So here, you know, one of the key lessons is to deepen accountabilities for such types of risk in all three lines of defense. You know, not only the front lines and the control functions, but as well as, you know, our audit practices. To make sure that, you know, folks understand this risk, you know, right through the organization and act with urgency.
You know, it's important because in today's day and age, you know, time is precious. You've got to deal with issues, you know, very quickly. The third big lesson, obviously, and is that, you know, as a bank of our size, you know, we're a global bank, you know, there's lots of information available, and it's important to coordinate and make sure that the right information is available to the right individuals and right areas of the bank on a real-time basis. So, those are the key, you know, I'd say lessons. But the good thing about these things, when you have a strong, sort of risk foundation, is you learn from it, make the adjustments, and move on, and make sure that you, you know, emerge out of these situations even stronger.
You talked about accountability. So just a question on accountability in terms of your perspective on where the accountability for this lies. How deep does it go? I think, you know, wasn't this quarter, a quarter ago, talked about some people losing their jobs over this? Question is: Are there more people likely to lose their jobs over this? If you could just kind of talk to us about accountability here, how you see it, and where that goes.
Yeah, I'd say, you know, when we... It's important that, you know, we do the investigation in a thorough manner, which we have, and where appropriate, you know, people have been terminated. And in other cases, you know, where it makes more sense, you know, people's compensation has been impacted as well. So this is... You would expect that, you know, from an event of this size and scale, that that's the right thing to do. But at the end of the day, you know, listen, I am the CEO of the bank. You know, I'm responsible, I'm... You know, I own it. And the good thing here is we know what the issues were, and we are fixing them.
We are, you know, want to make sure that that continues in the bank and get this behind us.
So I don't wanna belabor the point in terms of the AML issue. Obviously, a lot of things that we have questions about that you can answer, but where I want to take the conversation is just to other parts of the organization, the strategy. And I think the AML issues, at least in investors' minds, seem to have. Investors definitely do believe that the AML issues have implications for other parts of the bank, for the strategy in the U.S., and maybe even implications for Canada as well. So I want to go down that road, first in terms of the U.S., in terms of. You know, a key question I get is: What are the growth implications on the U.S. business from this AML issue?
Obviously, people are thinking about them, in part on the non-monetary side, that you can't go into. But if you could help us at least frame this discussion. I'll point out, you know, Q3 results in the U.S. were actually quite good. And so I guess just laying it out straight to you in terms of what are your growth expectations for your U.S. business in light of these AML issues? Does it significantly change your outlook here?
Firstly, you know, our overall strategy in the U.S., I mean, obviously, our top priority is to get this, you know, fix our AML issues and have those issues behind us. And like I said earlier, you know, we are making the right investments, attracting the right talent, making the appropriate changes, and that is underway. Having said that, you know, the U.S. franchise is a very strong franchise. You know, we operate in some of the best markets in the United States, right through the Eastern Seaboard. You know, TD serves more than 10 million Americans in the United States. We are one of the largest small business bankers in our footprint, the largest SBA lender for 7 years in a row.
If you look at, you know, the bank, you know, we operate through, what is it? 1,150 locations from Maine to Florida. And so, as you said, last quarter, you know, the bank posted loan growth of, you know, 5% and, you know, very good, stable deposit flows. So overall, you know, we have a very powerful franchise, you know, and as long as the markets remain strong and healthy, you know, I expect the franchise to keep on performing. And that's the way I look at it. You know, we have a very strong franchise and very great market, so you should see the benefits of that.
That said, and I think it came out on your Q2 call. I mean, in Q2 2023, if we go back, you talked about increasing store openings by 50%, doubling wealth advisors. It sounded like more recently, you've scaled that back, and so if you could just go into, you know, what your outlook is from that specific perspective in terms of store openings, wealth advisors, and the bigger question, so in a way, it does seem like the AML issues are impacting your growth plans in the U.S., if not directly, then indirectly.
It is a top priority. To fix our issues is a top priority. You know, for store openings and all that, we look at it from a market perspective. We've slowed it down, yes, you said, you know, quite dramatically. But we've got to look at, you know, the investment profile of the bank as well as to at what pace we do it. Markets are changing quite dramatically, how customers are dealing with us as well, so we are taking that as a data point. But the fundamentals of our U.S. business is a strong franchise in very important markets. You know, that has not changed.
Wanted to just better understand your U.S. wealth strategy, and also, if you could talk about the strategic value of your Schwab stake, now reduced, but still a significant stake in Schwab. So how should investors think about the strategy on the wealth side?
Now, you know. Our 10 million customers, approximately 3 million of those are mass affluent customers, as we would define. And they are TD customers now, and we want to make sure that we offer them all the products they need from TD. And so we have been building out that capability in the bank to make sure that these customers are served for their needs when they're dealing with TD. Their day-to-day banking is done at TD. They, when they come to our stores or come to our digital properties, we want to make sure the right offerings are there, and that's going reasonably well. You know, that's been you know, to deepen those relationships with our client base is obviously a good thing to do.
You know, with respect to Schwab, it's a very important and a great investment for us. You know, Schwab has more than $9 trillion in client assets, is a prolific, you know, player in its industry. We are, you know, single largest shareholder of Schwab. You know, we have certain governance, sort of, you know, features in our relationship. It's a very important deposit relationship we have. We sweep, you know, the deposits into the bank. So very happy with how that has turned out. And like I said, you know, it's been a great run. And Schwab has just completed the TD Ameritrade integration. It's gone, you know, remarkably well and looking forward to, you know, even greater days ahead.
Digging a little bit deeper into that. So should investors look at this really more as a financial investment, a good financial investment that TD made, or is there, is there something more here that TD benefits from this Schwab stake?
We do have a very big deposit relationship. It is a strategic relationship. You know, we are a big shareholder, and we have board representation, so you know, it's more than just an investment, you know, and it has worked out really well for the bank.
I wanted to talk about Canada. Obviously, a lot of focus on Canada. You had an Investor Day, I guess it's about more than a year ago now, time flies, but very much focused on the Canadian strategy. You know, similar to what I've been talking to some of your peers about, you know, there definitely feels like there's a negativity out there about the Canadian banking business, and meanwhile, Q3 comes around, and we're seeing good results pretty much across the board. No exception, TD had a very good performance in the Canadian retail business. So the question is: What are investors missing, and what's your outlook for Canada? Are we being too negative here?
Did the strength surprise you, or is it more something that you expected?
I think from a macro perspective, I think, you know, the Canadian consumer and the economy has been more resilient than what people were expecting, and that's been positive, you know, positive for Canada, positive, and what is good for Canada is good for the banks. You know, that's how this works, and so, you know, I think the fact that we had, you know, a massive amount of stimulus through the pandemic, I think has been helpful, and it's probably lasted longer than what people were expecting. But, you know, the world tends to, you know, some countries are in favor at one point, some countries are not, and it depends on sentiment, depends on headlines, but as a country, you know, we have a great thing going.
You know, we are attached to one of the largest, the largest economy. We have a free trade agreement, fairly well integrated into that economy. We have natural resources, you know, that are second to none, and a stable system, and a highly educated workforce, so a lot of plus points in Canada that sometimes, you know, we just take for granted, and a rising population as well, you know, to provide good growth potential, but you know, with respect to our own business, you know, I'm very happy with how Canada has performed for us, you know, and you know, our real estate-secured lending business, you know, we introduced a new channel in that, TD Mortgage Direct, which has worked remarkably well.
You know, three times the closing rates we see out of our other traditional channels, our proprietary channels. You know, through the pandemic, one of our stronger channels was always our branch network in Canada. Obviously, through the pandemic, you know, that was a little passive, like it was for the rest. But since that has come back, we've, you know, made good investments in that. That has worked out well. You talked about our Investor Day, you know, targets. We think we are on target to meet, you know, those targets we had set out. I think we said CAD 500 billion in mortgages. Credit cards has been, you know, pretty strong. You know, we just surpassed 8 million active credit card accounts in Canada.
You know, in a country of forty million, you know, that's a good growth we've seen. You know, and spend on that also, because we are more biased towards luxury and travel because of, you know, the partnerships we have, you know, the value proposition with TD Rewards, et cetera. So our card portfolio is more biased towards that, and we're seeing the benefits of that as well. On the deposit side, you know, one of the core strengths of TD, traditional strength, has been ability to attract core deposits. Again, very happy. You know, New to Canada sector is a very good growth engine for the bank, and we provide those services, you know, to new Canadians.
So overall, I'd say the Canadian business, you know, yes, overall from a macro perspective, has performed well, but I'm particularly happy with how our business is performing.
Just digging into some of that, I mean, one pushback that I get from investors, when it comes to TD and the Canada strategy specifically, is just this view that because of challenges in the U.S., that Canada has to work harder for TD, and so that maybe that pushes TD to be a little more aggressive in terms of risk and in terms of trading volume, at the expense of profitability. Curious your perspective on that, and how you would kind of push back on that perspective as well.
Not only would I push back, I totally disagree. Look at our, look at our performance. Look at our NIM performance, look at our returns, look at our volume growth, look at our market share. So, I think, you know, if, if that's the view, then I think facts would... are important to put on the table rather than, you know, anecdotal stuff on saying, "Oh, maybe this bank is doing that, that bank is doing that." You know, we're very happy. We are through the, through-the-cycle lenders, and, you know, we're consistent in how we manage those businesses.
And in terms of the competition for deposits, I mean, we're seeing competition. I think it's fair to say, seeing competition heat up. All the banks are very much focused on, on primary clients and those core deposits. You know, TD historically has had a very strong deposit franchise, but how are you managing through this period of much more intense competition on the, on the deposit side?
You know, the core strength here is that of the scale the bank has, you know, the network we have. You know, one out of three Canadians bank with TD, more than one out of two Torontonians bank with TD. So, you know, we have this core strength, the of the bank that you know is helpful, you know, when you're going through a phase like that, and the bank, you know, our brand, how we manage those businesses, has worked out well and continues to work well for us.
I wanted to talk about expenses. On the call, it sounded like expense guidance for this year has moved from mid-single digit to high single digits. And so the question of why we're seeing that, is this purely the AML issue, and can it go up from here? Like, is the outlook for TD higher expense growth because of this AML issue, and could that extend into 2025? And how should we be thinking about that?
You know, firstly, this, the expense change in guidance, you're right. We, you know, we were expecting mid-single digit growth, and now we think it'd be high single digits. And three reasons for that, you know, our investment in risk and control infrastructure is higher than what we were expecting. But in addition to that, in our market-driven businesses, like TD Securities, TD Wealth, you know, are doing well. And as you'd expect in those businesses, you know, variable comp goes up as well. That's part of your expenses, so that's another reason. By the way, that's a healthy reason why expenses go up. And the third is that we had, you know, some litigation expense that we posted, and when you take all those together, that's how we changed the guidance.
I think regarding, you know, and I know you've asked me previously on the call as well, okay, how should I think of the recurring expense growth here because of the AML investment and all that? And so on that, you know, we generally in the bank at the end of Q4 always provide some guidance for the upcoming year, so be patient, we will provide that. But I think we need to keep all these things in perspective from a TD perspective, right? I mean, total expense in the bank, total expense, is approximately CAD 30 billion a year. And so let's keep this in perspective, you know, that are things gonna be manageable or not? And my view is it'll be manageable.
Maybe that's a good segue. So CAD 30 billion total expenses, could you put a price tag, even just round numbers, in terms of people, systems, this AML issue? How much, how much is it in order to, to deal with this AML issue?
We said what the fines and settlements are gonna be, so you know that number.
Yeah.
You know, we said that, you know, on an ongoing basis, at least for 2024, into 2024, that at the corporate level, you know, we'll be having a number of CAD 200 million-CAD 250 million, which is approximately double than what we would normally have, and that's going into our investments on the recurring. Sorry, on a one-time basis, we thought we should carry that in corporate, so that once we are done making those investments, that they disappear and don't become part of the run rate of the bank. And then the run rate is in the segments itself. So that we will give you better sense after Q4, when we know that this is the way it is gonna work out. But I was trying to give you a sense from the...
as the scale of the bank and the overall bank, as to what this is in relation to the overall bank, and that's what I was saying, by CAD 30 billion overall expenses, and I expect this to be manageable.
In terms of what you're trying to achieve as you upgrade your AML systems, is the idea here to be, to move up to some sort of peer average or to be kind of best-in-class? Like, what's... How big a step is this in terms of what you're trying to build on the AML side?
But this is not a competition, as you know, who's got what here. The most important thing here is to make sure that you have controls and systems in place that does not allow bad actors to exploit your systems or your bank. And important that, you know. And people ask me: "Well, when will you be done?" Well, you're never done, because it's not as if these threat actors, as they are known as, that they stand still and say, "Well, this is one use case that kind of works, and let me stick to that for the next ten years." It keeps on evolving. And, you know, in today's day and age, people use very sophisticated methods to exploit banks.
So this is going to be an ongoing, you know, situation for the industry, I suspect. So, you know, my view is, okay, how do you define success here? Well, you define success by stopping these people. And if you do that, then I think, yeah, that would be great. And, you know, that's the way to look at it, and that's the way we are approaching, you know, how we not only build the remediation around it, but sustain it for the foreseeable future.
So is it the right way to think about it? Is it thinking more holistically beyond AML? I mean, we're really talking about broader initiatives here, whether it's AML or other types of regulatory issues as well, that you're investing across the spectrum here.
Yeah, but that will be more BAU, like, you know, more business as usual. You know, as a bank, you know, we're a hundred and seventy years old. There are new techniques, you know, new ways of managing certain kind of, you know, risks or businesses, and we make those investments in the normal course. So, that's how you should look at it. But I think on the AML side, you know, the AML fraud, what you call these financial crimes generally, is turning out to be evolving very fast and very important for banks to keep up, to make sure that the financial system remains pure.
Yeah, I think that's, you know, a theme we hear across the spectrum. We're gonna have a session, a keynote session with American Express, and that's gonna be an important topic in terms of how they deal with that. But, you know, maybe switching to capital deployment, we had a little exchange on the call about that, but I just wanted to clarify in terms of, you know, what the minimum CET1 ratio that you're targeting. Maybe first to start there and then a follow-up, just to-
I know, yeah, you were quite tenacious on the call. Good, good you were. I said, you know, important as we, you know, at TD, the way we look at capital is look at the environment we are in. If there are uncertainties, you know, TD has a tradition, a history of being conservative custodians of capital. We have higher capital levels, and that's, that's been the core part of our DNA, and that has not changed. My view is, yes, you know, we've, we've traditionally looked at all, you know. You've asked me a few years ago, "What are you targeting? The 12-12.5%," whatever the number might be, but sometimes we'll carry more than that because, you know, of the uncertainties in the markets. My view is there's lots of uncertainty here.
And so to be prudent capital managers, you know, it's better to be prudent, and that's the way we've approached this. That, you know, the... I wouldn't want to say... People say, "Well, we're in a soft landing, Bharat, why are you worried?" Well, we'll see the degree of softness, you know, when we get there. And secondly, soft landing means, you know, we were before growing at maybe 3%, 4%, now we're gonna grow at 1%... By definition, there's gonna be certain sectors that's not gonna be very soft for them. And we are a national big player in all the markets in which we operate. Just wanna make sure that we are, you know, cognizant of those risks and make sure that we are prepared for it should things go awry.
So basically, to put all together, if we see your CET1 above 12.5%, it, it's not necessarily the case that this is. We shouldn't necessarily view this as deployable capital, that this is an additional buffer for the time being that you wouldn't necessarily want to deploy.
But it depends on the way we, you know. Our capital deployment has not changed. You know, we will support our core strategies. It's important that we do. You know, we wanna make sure if we are lacking any capabilities, we'll use our capital to build those capabilities in the bank. In the end, you know, and we've shown this over the past as well, if we think that we have excess capital based on the markets in which we are and the environment we are in, we'll buy back our shares, and we've shown that as well.
You know, talking about buybacks, you know, over the past four quarters, you bought back a lot of shares, 87 million shares. You know, given the most recent announcement in terms of selling down the Schwab stake, do you view that as a mistake? Obviously, hindsight is always much easier to make decisions with, but how would you characterize that level of buybacks, given what we know today?
Oh, I don't consider it as a mistake. You know, firstly, the Schwab stake, I said, you know, it's a strategic investment, and we maintain all the strategic flexibility that we think is important, including governance requirements, et cetera. You know, not that you should look at only the math here, but if you look at, you know, when you're buying back stock at a particular multiple and selling a stock with a much higher multiple, it's still accretive to TD. So I think people get excited from a perspective, but the numbers do the talking at the end of the day.
Wanted to talk about your insurance business. It was a topic of discussion on the Q3 call. I think if you adjust for the elevated cat loss event, you know, results would have beat expectations, and I think that's the right way to look at the Q3 results. But it does beg the question in terms of... And you get this, you know, off and on. Well, I get this off and on. Why is TD in the P&C insurance business? Doesn't it just add a lot of volatility to earnings? What does it really give the bank? I know you really like this business, so give you an opportunity to defend it, especially after a quarter where results were not so good because of this specific business.
Yes. I'd say it is, it is a great business in a sense, as long as you run it the way it is supposed to be run, that, you know, you're able to price the risk and make sure that you're managing the business in an appropriate manner. For TD, we are the largest direct insurer in the country. We have the scale. You know, we have a brand that works remarkably well for us. It's a business that gives you, you know, a lot more fee income compared to net interest income. So, you know, it, it's good from that perspective as well, provides you a bit of an offset, you know, when we if you're too rate sensitive, et cetera. It is a business with very impressive ROEs.
So, yes, there is volatility, but given the overall size of the bank, is this volatility manageable or not? In my view, it is. You know, so this quarter, that business, you know, because of... It was remarkable, you know, how many catastrophic events or weather events that took place, and some of us lived it in Toronto and, you know, out west, the wildfires. You know, it's been quite a remarkable year. So it made, you know, not as much money. It made very little, actually, only CAD 15 million in the quarter. Normally, it'll throw off CAD 150-180 million.
But if you look at top-line growth, you know, what it is doing, you know, how many new customers coming into the platform, you know, we introduced this digitization, the investments we made in the business, and that's really working out well. So, yes, there's a bit of volatility, but if you look at, you know, how the business is priced, you know, how the business is run, our positioning in the market, you know, we think it's attractive.
I want to talk about capital markets. You've had Cowen now for quite a while, a year and a half. I'm curious your perspective on how this deal has performed relative to your expectations, what's working, and where do you think where is there more work to be done in terms of getting it to where you want it to be?
Firstly, it's been a great, you know, remarkable as to how well it has worked out. If you look at, you know, why Cowen at the time and now TD Cowen, you know, we were looking at complementary businesses between TD Securities and now TD Cowen as well. You know, we had wanted to make sure that for equity capital markets in the U.S., that we had, you know, more capability than we had previously. You know, we didn't have much of a research platform for the, for the U.S., and with TD Cowen, we have a fantastic research platform now. There were certainly, you know, attractive, what I call investment banking verticals that we did not have, and now we do. You know, biotech comes to mind, healthcare.
And then, as well, you know, TD Bank, America's Most Convenient Bank , you know, we have a large retail commercial footprint, and we have a lot of existing clients that would be in what we'll call in the middle market segment. And these are clients that require, you know, more capital markets types of capabilities to be put in front of them. Again, you know, TD Cowen, very good at that, that particular segment. So very complementary businesses, and then it's been remarkable. You know, in that space, normally you worry about, you know, okay, you acquire something, are the values gonna be aligned? What about the culture? You know, are you be able to retain the talent? And I, I...
You know, the teams have worked very hard, and Riaz has done a terrific job, as has Jeff Solomon, you know, and others to create that platform. And you can see the performance, you know. I mean, Riaz talked about it. I think one of your colleagues asked him the question in the last quarterly call. You know, the business now has the capability of generating, you know, I don't know, $1.7-$1.8 billion in revenues a quarter, you know, in the current conditions, in the market conditions. So we like, you know, as to how this has played out. It provides us with a way to address, you know, some of the gaps we had before.
Now we are a full service, you know, competitor in an important market.
We only have a few minutes left, but I wanted to talk about ROE, definitely a theme across the sessions today, talking about how you hit your medium-term ROE target, 16% plus.
What are the building blocks here to get you there? Is it achievable? Capital rules have gone up over this period, so how big a hurdle is that to get over in order to achieve the target? Is it still a target that you can see in front of you?
Actually, we put out our target after the capital rules had changed, you know, Basel III, et cetera, all part of that. Yeah, we feel it's achievable over the medium term. That's what we've said, and the types of businesses that we have, and the way we are managing, not only those businesses, the way we see our markets evolving, we think it is achievable over the medium term, and we're quite happy to have that target out there.
Finally, I wanted to talk about succession. You've been in the role for 10 years now. You're dealing with a U.S. government investigation, so why not just say, you know, "Let someone else deal with this?" Maybe start there. Thoughts on-
I like that. Meny, over to you. You're applying for a job or what?
Basically, that's what I'm going for. I put you on the spot, so you have to say yes, but...
Listen, you know, succession in a bank like TD, any large organization, is important, is an important function for the board. Probably the most important one decision boards make. You know, in TD, we have a very robust process in place, you know, that goes back multiple years. And, you know, we have a terrific bench in the bank, as well, and very deep talent, and that's why you see what TD is all about. You know, we've been consistent performers over many, many years and have scaled businesses in every market in which we operate. So, listen, I'm busy, you know, not only to remediate our programs in the U.S., but how do we serve our customers well and make sure that the bank continues to perform as all our stakeholders would expect?
Okay, you could be golfing, but you're here, so. Thanks a lot, Bharat.
All right, Meny.
Appreciate it.
Thanks very much. Appreciate it. Thank you.
Thank you. Thanks.
Thank you.
It's now my pleasure to call up-