😰 TD Crashes ~8% After Money Laundering Allegations

Plus, Starbucks investors blindsided after worst post-earnings stock performance since 2000...

TOP STORY
📉 TD Crashes 7.55%, Facing Risk of $2B Fines for Money Laundering Allegations

It was a ROUGH week for everyone’s favorite dividend stock, with TD Bank crashing 7.55% and falling to its lowest point since January 2021.

TD Bank is the 3rd most held position on Blossom, with nearly 10,000 shareholders, so I’m sure many of you have questions about what is going on. Let’s try to unpack it…

😰 TD Used to Launder $653M in Drug Money

Yup, you read that right. TD has been under a lengthy investigation by US law enforcement about its role in a $653 million money laundering and drug trafficking operation.

Here’s the breakdown:

  • 💊 Da Ying Sze (aka David) laundered $653 million in cash as part of a drug-trafficking operation of Fentanyl and other drugs.

  • 🚔 After investigating David, the DEA found large sums of money being deposited into multiple financial institutions, with TD being one of the most frequented.

  • 💰 David and the criminal ring would travel between branches, making numerous large cash deposits and bringing heavy bags of cash to the teller window. David admitted to using gift cards to bribe bank tellers.

  • 😬 TD Bank’s ‘Anti-Money-Laundering’ or AML program failed to stop David from laundering, raising concerns.

  • 📉 The investigation became public on Thursday, crashing the TD stock as analysts estimate fines could be up to $2B.

Criminals constantly seek to use banks to launder money. Regrettably, our U.S. Anti-Money Laundering program did not effectively thwart these activities. This is unacceptable, and we must and we will do better.”

TD Bank Official Statement

💰 TD Facing Up to $2B in fines

The full impact of the US probe is still unknown, but it’s likely between $500M to $2B in fines.

On the lower end, TD announced it was setting aside $450M to cover the financial penalties.

On the upper end, a National Bank of Canada analyst estimates a ‘worst-case scenario’ with fines of up to $2B.

But fines aren’t the only issues… 😬

TD’s Blocked Merger With First Horizons

It now seems that the blocked merger between TD and First Horizons was driven by these regulatory woes.

This is particularly concerning as TD has pointed to a US retail banking expansion as its next phase of growth.

📑 Consent Orders = Costly Reforms

TD will likely also face consent orders requiring the bank to undertake an array of costly reforms, which analysts estimate could erode TD's future earnings by over $ 1 billion in a worst-case scenario.

🧐 Will TD Bounce Back?

With TD trading at a 6% discount from the other big banks (compared to its usual 4% premium), many investors are seeing the crash as a buying opportunity.

TD was the #8 Most Sold stock and the #17th Most Bought on Blossom this week, signaling overall fear among the community.

The impact of this situation is no doubt serious, but with the ~8% price drop this week (wiping out ~$11B in market value), many analysts argue that a lot of the downside risk is already priced in.

We view TD’s valuation as discounting something close to the worst-case scenario. If the worst case is averted, the stock could significantly outperform its peers.

Darko Mihelic, Analyst at RBC Dominion Securities

👀 What’s the Community Saying?

There are a few TD mega-threads on Blossom right now, so if you want to get a pulse, definitely check out here, here, and here, or just explore the TD stock page on Blossom. Here are some comments that stood out to me:

📈 Stong buy for me! Never go wrong with holding bank stocks in Canada. The market seems to be pricing in the 2 Bn fine.

@benjk

📉 Sold my entire holdings a few weeks ago. No point holding a CAD bank that keeps adding risk and being mismanaged. Too many other options out there to hold onto garbage.

@cdt90

📈 I bought a few shares. Over reaction of the market in my books. It might take a year or two to find growth, once the allegations are gone.

@dividend_growth_investor

📉 I’m strategizing my exit plan by buying more shares at a lower price to average down, and I’ll sell them when the stock rebounds. 🤞🤞🤞

@fionawealth

💡 My Thoughts

All this brings to mind Buffet’s famous quote 👀

I don’t usually share my own personal opinion here, but don’t be surprised if you see @maxstocks pick up a few TD shares on Monday…

That said, there is still a lot of uncertainty, and some analysts are cautioning to “put a greater weight on worst-case scenarios for the stock,” so as always, do your own research!

REPORTING LIVE FROM THE NASDAQ
 🎥 Behind the Scenes at the NASDAQ x moomoo Opening Bell!

On Monday, I had the immense pleasure of being part of the Opening Bell ceremony at the NASDAQ - one of the 3 largest stock exchanges in the world - together with Blossom ambassadors Canadian in a T-Shirt, Joyee Yang, Ericnomics, and Seth Godwin.

It was such a cool and unique experience! A few highlights:

  • 🎥 Getting to see the NASDAQ floor with cameras everywhere streaming the event

  • 🎊 The countdown to market open with confetti popping the second investing started

  • 👀 A tour of the NASDAQ offices, complete with relics of their most notable companies, including the first MacBook computer, a functioning Desktop running Windows 95, a mini Cybertruck, and more

👏 A HUGE thank you to moomoo for having us out to this event which celebrated it’s partnership with the NASDAQ and launch of NASDAQ Total View on moomoo!

📊 With this partnership, moomoo is now offering Level 2 Quotes for free to all Canadian and American investors. “Level 2 Data” shows you the full spectrum of outstanding but/sell orders, which is useful to decide when to enter and exit positions.

🤑 For Canadians, moomoo is also a great low-cost option for trading US stocks in your TFSA and RRSP, charging FX fees as low as 0.09% + $2 per transaction (compared to 1.5% at Wealthsimple).

EARNINGS REPORT
☕️ Starbucks Stock in the Dump, Falling 17% After Earnings

Ok, maybe the picture is a little dramatic, but I think it’s fitting for Starbuck’s 17% stock drop this week - the coffee giant’s worst post-earnings performance since 2000 after an extremely rough earnings:

  • Revenue: $8.56 billion vs $9.13 expected

  • Earnings per share: 68 cents vs 79 cents expected

Starbucks also slashed its fiscal 2024 forecast, predicting hard times ahead for several quarters.

😅 As many of you may know, I spend FAR too much at Starbucks and personally hold a bit of the stock along with ~1,000 others in the Blossom community, so let’s take a look at what’s going on here…

📉 Sales are Down 4%, Margins Down 1.4%

While revenue year over year was only down 1%, ‘comparable store sales’ were down 4% globally and 6% internationally - with an 11% decrease in China.

Comparable store sales compares the sales year over year from stores that were open last year (meaning it takes out the impact of new store openings).

Margins were also down aggressively from 14.2% to 12.8%, and Fiscal 2024 guidance predicts continued declines across the board.

🤑 Consumers Are Tightening Their Belts

Starbucks claims that while its most dedicated customers have stayed loyal, the decline has come from ‘occasional customers’ who are increasingly seeking deals - a pattern also seen by McDonald’s, Pepsi, and others.

Starbucks’s struggles may also signal a weakening economy, with Wall Street often looking to the coffee giant for a pulse on consumer sentiment. A $7 coffee is obviously not a necessity, so it’s often one of the first things people cut back on once if the economy is in trouble.

Starbucks is the ultimate ‘strong economy’ indicator. I think the economy’s weak for a lot of reasons, but my latest one is Starbucks”

Dan Fitzpatrick, founder of StockMarketMentor

☕️ What’s Starbucks Doing About it?

Starbucks’ CEO Laxman Narasimhan insists that the “quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead.”

Here are some strategies Narasimhan announced to combat the declines:

  • 😴 Exploring how to meet overnight demand from 5pm to 5am (Narasimhan claims a pilot test doubled business).

  • 🪻 Doubling down on successful product launches like the ‘lavendar drinks’ which were apparently one of the chains most successful launches (I personally thought they tasted weird).

  • ⭐️ Launching a version of the app where customers can order without being a loyalty member.

😬 A ‘Disaster’ CEO Interview

While some of those tactics sound promising, Narasimhan's CEO interview with Jim Cramer showed more cracks, with commentators like Joseph Carlson calling it a ‘disaster.’

After the CEO tried to blame protests and conflicts in the Middle East, Carson says:

Companies like to blame [conflicts & protests] more than it’s actually causing a concern… I don’t beleive that’s a valid excuse for the overwhelmingly and diversified poor performance from Starbucks

Joseph Carson After Hours

💡 Some other key moments:

FROM THE BLOSSOM COMMUNITY
🎙️ Top Discussions this Week

👇 Click to see the full post!

🗞️ What else you might’ve missed:

  • 📦️ Amazon Web Services (AMZN) on track to hit $100 billion in sales this year

  • 🪙 Coinbase (COIN) first-quarter profits surged above $1 billion on ETF frenzy

  • 💉 Pfizer (PFE) stock gains 7% after earnings beat

  • 🍟 McDonald's (MCD) Q1 earnings miss sales expectations

  • 🥦 Loblaw (L) CFO Pushes Back on Claims Its Food Pricing Practices Are Unfair