TD shares rebound despite allegations

Downgrades result following bad publicity

TORONTO Shares of Toronto-Dominion Bank rebounded slightly on Monday after plunging more than five per cent on Friday following CBC News reporting allegations that the bank used aggressive sales tactics and that employees had admitted breaking the law.

TD shares closed at $66.96 in Toronto on Monday, up 1.5 per cent, despite downgrades from several analysts.

RBC analyst Darko Mihelic downgraded TD from outperform to sector perform and cut its target price from $73 to $68, as the news reports could inflict damage that may have a “material impact on the bank’s reputation” and earnings and valuation.

“TD has historically been known for its strong Canadian franchise and its best-in-class customer service. Amidst a very competitive environment in Canada, we believe significant damage to TD’s brand could have a material impact on both earnings and TD’s premium relative valuation to peers,” Mihelic said in a note to clients on Monday.

“Recent allegations, whether true or false, will likely take time to investigate and we are unlikely to receive full clarity or comfort over the shorter term.”

Employees told CBC News the bank engaged in high-pressure sales tactics and unethical practices.

Some acknowledged increasing lines of credit, overdraft protection and credit card limits without customers’ knowledge.

Shares of TD Bank slipped 5.5 per cent to $66.15 in Toronto on Friday after the most recent CBC News report was published — marking the biggest decline since January 2009.

TD has said “the environment described in the media report is very much at odds with how we run our business, and we don’t recognize it from our own perspective, experience or assessments.”

“We will review all of the concerns raised and we are committed to doing the right thing,” said TD chief executive Bharat Masrani in a statement.

National Bank Financial analyst Gabriel Dechaine also downgraded TD from outperform to sector perform, and cut its target price from $74 to $69.

“While this story is still unfolding, the inevitable comparison is to the situation faced by Wells Fargo (WFC), which was fined US$185 million, on Sept. 8, 2016, by U.S. regulators when abusive sales practices by the bank were uncovered,” he said in a note to clients on Sunday.

Until an internal investigation at TD is complete, its shares will remain under headline risk, said Brian Klock, an analyst at Keefe, Bruyette & Woods, in a note on Sunday.