National Post (National Edition)
TD shares plunge 5% after claims
Unethical practices alleged in CBC report
Shares of Toronto-Dominion Bank fell more than five per cent on Friday following allegations in a CBC News report that the bank engaged in high-pressure sales tactics and unethical practices.
“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,” TD said in an email statement on Friday.
The bank also said, in a statement on its website, that it sets goals to manage its business, but that all employees are required to follow a code of conduct and act ethically.
Concern among TD investors that the company is having “a Wells Fargo moment” will be an “overhang that is unlikely to dissipate in the near term,” said John Aiken, an analyst at Barclays in Toronto.
In the report, TD employees said they felt pressured to meet high sales goals, and admitted to breaking the law with practices such as increasing lines of credit without telling customers.
Aiken said that while it is unlikely that there will be material repercussions from the report, there is little TD can do in the near term to disprove the allegations and questions will linger until a probe, which could take months, is complete.
“Ultimately, we do not believe that there will be much of an impact on TD as we would be surprised if the issues described were as systematic as occurred with Wells Fargo in the U.S,” Aiken said in the note. “That said, given the damage that the allegations did to Wells, investors will likely remain cautious about the tail risk and the impact on TD’s valuation may not dissipate until after an official investigation is concluded.”
Wells Fargo & Co. has been embroiled in a scandal involving abusive sales practices in its branches. The bank was slapped with a US$185million fine by U.S. authorities in September for opening hundreds of thousands of retail bank accounts without client approval, according to the Associated Press.
The U.S. bank has since been trying to temper public outrage, and its board and management have been conducting a review to examine how these practices spread. Last month, Wells Fargo fired one executive and three senior managers, according to the Associated Press.
The CBC News report published on Friday cited “hundreds of current and former TD Bank Group employees” who described a “poisoned” and “stress inducing” work environment.
Some of these employees told CBC News that they broke the law with some of their tactics in an effort to reach quarterly sales goals, or risk termination.
The Financial Consumer Agency of Canada says it is aware of allegations of financial institutions signing up consumers up for products without providing all the required information, particularly regarding fees.
“When products are offered, the bank must obtain the consumer’s express consent and disclose key information about the product or service .... Banks are also required to disclose to consumers certain key information about fees, costs and penalties for products or services,” the FCAC said in an email.
TD’s shares closed down 5.5 per cent at $66 in Toronto Friday, marking the biggest one-day decline since December 2014.
Ratings agency DBRS said that while the allegations are not on the same level as those against Wells Fargo and that it does not anticipate any changes to TD’s rating as a result, it is monitoring the situation for any potential “reputational damage.”
“Given its relatively high rating level and the importance of the Canadian retailbanking sector to TD, DBRS has limited tolerance for any adverse impact to TD’s franchise strength and/or earnings power, both of which are key underpinnings of the Bank’s credit profile and overall credit ratings,” DBRS said in a report issued Friday afternoon.