Charles Schwab stock falls on TD's review of its stake

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

The review was initiated in the wake of TD's suspension of its medium-term financial targets and the announcement of a strategic and spending review in December. Incoming CEO Raymond (NS:RYMD ) Chun, who is set to take the helm in April, confirmed at the RBC Capital Markets’ Canadian bank CEO conference in Toronto that the fate of the Schwab shares is part of the capital-allocation review.

Chun emphasized that TD's ownership of Schwab shares is distinct from its agreement with Schwab regarding sweep-deposit accounts for clients, which would continue regardless of the outcome of the strategic review. He highlighted the bank's commitment to its U.S. operations, noting its status as one of the country's top ten banks by client numbers.

TD previously reduced its stake in Charles Schwab in August, selling 40.5 million shares to partly finance the costs of fines from U.S. anti-money-laundering investigations. The bank's involvement with Schwab began in 2020 after selling its interest in TD Ameritrade Holding Corp. to Schwab.

Chun also discussed TD's efforts to restructure its U.S. balance sheet, including exiting certain loan portfolios and repositioning bond holdings, with the aim to complete the process by the end of fiscal 2025. He further addressed the bank's focus on improving anti-money-laundering controls, a priority that includes the recent approval of a monitor by U.S. authorities to oversee the bank's efforts.

Despite the challenges faced by TD and the impact on its share performance in 2024, some analysts remain optimistic about the bank's recovery prospects now that the U.S. laundering probes have concluded. The bank's capital markets unit, wealth and insurance division, and Canadian personal and commercial banking business are seen as potential drivers for future growth.

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Source: Investing.com