TOP STORY
😰 TD Reports a Rare $181M Loss and a Massive $2.6B Provision for its Ongoing Money Laundering Scandal

🚨 The 2nd most held stock on Blossom had big news this week, reporting a massive $2.6B provision for the expected fines and investigation costs of its high-profile Money Laundering Scandal.

😰 This led to a rough quarter for the bank, reporting a rare loss of $181M, its first since 2003.

📉 This caused the stock ($TD) to initially drop 3.5% on Thursday before bouncing back on Friday to end the week down -0.6%.

🏦 So let’s unpack the story to see whether the nearly 10,000 TD holders on Blossom (myself included) should be concerned, and what this means for TD’s stock moving forward…

🦹‍♀️ Recap of the Scandal

First, a quick recap on this wild saga…

• 💊 On May 2, it was reported that a criminal ring laundered $653 million in cash as part of a drug-trafficking operation, with TD being one of the most frequented banks used by the criminals.

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

• 😬 TD failed to stop the criminals, raising big concerns about the bank’s Anti-Money-Laundering practices

• 📉 This crashed TD’s stock ~8% as analysts estimated ‘worst-case scenarios’, and it was uncovered that the blocked merger between TD and First Horizons was driven in part by these issues.

• 🐝 Read the full story in the May 5 Weekly Buzz here!

😮‍💨 Finally, Some Clarity

While reporting its first loss in over 20 years is certainly not a good thing, for the most part, analysts were relieved to have clarity on the total impact of the scandal.

Together with the $450M in provisions last quarter, the new $2.6B provisions bring the total estimated costs to a little over $3B - which is actually on the upper end of forecasts (i.e. National Bank had initially estimated $2B as a worst case scenario).

📊 Other Earnings Highlights

While mostly overshadowed by the scandal and the $181M loss, there was lots more to unpack from TD’s earnings:

• 💰Revenue hit $14.18B, up ~10% from last year, driven by higher insurance premiums, asset growth, higher deposit margins, and increased trades in the direct investing business

• 😰 TD’s provisions for credit losses were $1.07B, up from $766M last year (but flat compared to the previous quarter)

• 💸 Adjusted profit was $2.05 per share, slightly missing the $2.07 expected by analysts

• 🔥 Insurance earnings were hit hard, down 90% to $15M from $145M last quarter after $186M in claims from Toronto flooding and Alberta wildfires

• 🏦 TD sold 40.5M shares of Charles Schwab (worth about US$2.6 billion) to keep capital levels high, reducing TD’s ownership in SCHW from 12.3% to 10.1% and driving a nearly 6% drop in Schwab’s stock

🏦 My Thoughts On TD Moving Forward

🤔 So, what does all this mean for TD moving forward?

👍 To me, the fact that the stock was relatively unphased by the net loss and the $2.6B in provisions is a good sign and takes away some of the uncertainty that has plagued the stock over the past few months.

🇺🇸 The biggest unknowns now are the ‘non-monetary penalties,’ specifically concerning the bank’s US expansion plans (which TD has long pointed to as a big future growth driver).

🚫 The scandal has already had a large impact on TD’s US ambitions (i.e. blocking its acquisition of First Horizons Bank) and could lead to regulators imposing restrictions on US asset growth, which would be a huge hit for TD.

📈 Despite the worrisome quote, the same analyst also mentions that he believes “the market is pricing in a worst-case scenario that does not really have a precedent.”

👀 For me personally, I’ll be leaving TD at 8% of my portfolio but continuing to keep a close eye on the company and keeping you updated as the story develops!

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ACQUISITIONS
🏪 Alimentation Couche-Tard offers to buy 7-Eleven Owner

🚨 Big news on Monday with Alimentation Couche-Tard ($ATD) announcing a big offer to buy the Japanese parent company of 7-Eleven, Seven & I Holdings ($SVNDY), sending Seven & I’s stock skyrocketing up over 20%.

🏪 Alimentation Couche-Tard is a $55B Quebec-based convenience store retailer with over 16,000 stores worldwide, including the Circle K convenience stores.

💡 Interestingly, Seven & I is actually significantly larger than ATD, with over 5 times the number of stores. Despite this, Seven & I has a lower market cap, only ~$31B before the recent jump.

🤝 The merger would be the largest foreign takeover of a Japanese company and result in a convenience store behemoth with over 100,000 stores, so it’s worth taking a quick look…

🤔 How Likely Is the Merger?

In short, it seems not all that likely:

• 🇯🇵 Foreign takeovers of Japanese companies are extremely rare, with a fiercely protectionist government

• 🚫 The deal will likely be opposed aggressively by US regulators, with recent history of fighting even smaller deals (i.e. earlier this year, the FTC sued to block a $25B merger between Kroger and smaller rival Albertsons Co)

• 💰 Couche-Tard might not have a strong enough balance sheet for an attractive cash offer (as opposed to mostly equity)

• ✊ Seven & I has strongly resisted pressure from activist investors to oust the CEO and divest even its legacy business (let alone a complete sale)

🤞 But Not All Hope is Lost…

Despite the risks and blockers above, there are many reasons not to write off the deal as dead in the water:

• 🌟 Seven & I has been under pressure from activist fund ValueAct Capital to boost value, and many believe the fund will push for the deal.

• 💴 The weak Yen and the company’s ~17% stock drop over the past year have put Seven & I in a vulnerable position for potential acquirers.

• 🇯🇵 Recent changes in guidelines for mergers and acquisitions have pushed Japan to a more corporation-friendly environment

• 📈 With the record one-day gain of 23% on Monday, it’s hard to deny that investors want the deal, and Seven & I will at least have to take the deal seriously.

🔭 What the Future Holds for ATD

🔍 Since no one on Blossom really holds Seven & I, let’s focus on ATD.

📉 First, while the news gave ATD a 4.5% bump when announced, the stock actually ended the week down 2%.

📈 Even so, the company has shown strong growth, up 10.5% in the past year and 97% in the past 5 years, keeping pace with the S&P 500 with slightly less volatility.

💪 The company has also strongly outperformed the Canadian TSX index where it is listed (which is up only 45% in the past 5 years), with some saying ATD could even be the best-performing large-cap Canadian stock of 2025.

🌍 The proposed acquisition of Seven & I would continue ATD’s ‘growth by acquisition strategy,’ with ATD recently acquiring 2,200 gasoline stations from TotalEnergies SE, building a solid presence in Europe.

💰 In addition to growing revenue, these strategic acquisitions have allowed ATD to build strong economies of scale, negotiating bigger volume discounts from suppliers.

🥪 The 7-Eleven acquisition would also help ATD build a better food supply chain to expand its fresh food offerings (learning from 7-Eleven Japan, which re-stocks its store 5 times a day to ensure freshness).

🌟 Altogether, the potential acquisition would almost certainly be good news for ATD shareholders, but for now, it seems like the market is continuing to wait and see whether the deal has legs or if it’s just wishful thinking.

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FROM THE BLOSSOM COMMUNITY
🎙️ Top Discussions this Week

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