TD Bank to pay $1.2 billion to settle lawsuit tied to Allen Stanford Ponzi scheme
Toronto-Dominion Bank has agreed to pay out US$1.205 billion to settle claims it was facing in connection to the Allen Stanford Ponzi scheme case.
The bank said it would pay the amount to the court-appointed Stanford Receivership Estate but denied any liability or wrongdoing in the multi-year Ponzi scheme orchestrated by financier and Stanford Financial Group head Allen Stanford.
TD provided correspondent banking services, such as clearing payments, to Stanford International Bank Ltd. starting in 1991. TD said in a statement that it was looking to settle the case based in federal district court in Texas to avoid uncertainty from a drawn-out legal battle.
HSBC Holdings and the Independent Bank Group were also named in the settlement, and will pay out US$40 million and US$100 million, respectively.
TD previously went to trial in Canada in 2021 on a US$4.5 billion negligence claim filed on behalf of victims of Stanford who alleged TD should have done more to stop the fraud. Ontario Superior Court Justice Barbara Conway sided with TD in a decision that was affirmed at the Ontario Court of Appeal, but an application for leave to appeal was filed and is pending at the Supreme Court of Canada.
John Aiken, senior analyst and head of research at Barclays Bank PLC, said the settlement was a positive for TD since the drawdown on capital wasn’t overly significant and will clear up any uncertainty around litigation.
“Although the absolute dollar amount is significant, we believe that it was far less than the worst-case scenario envisioned by some in the market,” Aiken said in a Feb. 27 note. “While TD’s pro forma book value declines by approximately 1.2 per cent, ahead of earnings on Thursday, we would expect the settlement, and the elimination of its uncertainty, to be a positive for TD’s outlook.”
National Bank of Canada analyst Gabriel Dechaine also said the settlement was unlikely to make a major mark on TD’s capital position.
Dechaine’s team had forecast an 11.6 per cent CET 1 ratio for the bank by the end of the second quarter with its US$1.3 billion Cowen deal and US$13.4 billion acquisition of First Horizon factored in.
After this settlement, Dechaine said TD’s ratio would slip below the 11.5 per cent threshold investors expect banks to keep, but remain above the 11 per cent imposed by the Office of the Superintendent of Financial Institutions.
While the team expects TD stock to come “under pressure,” as did shares of Bank of Montreal and Canadian Imperial Bank of Commerce recently when they announced large litigation settlements, they think TD has options to address any shortfall.
“Does TD need to raise equity? We don’t think so,” Dechaine said, citing that ability to generate its own capital potentially through credit-risk transfers or by selling down part of its position in the Charles Schwab Corp.
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TD said it will record a provision of about $1.2 billion after tax in its first quarter, which the bank will report on Thursday.
Stanford was convicted of running a US$7-billion Ponzi scheme in 2012 after selling bogus investments and defrauding 30,000 investors from over 100 countries. He was sentenced to 110 years in prison.
By September 2021, the court-appointed receiver had recouped over $1 billion for the fraud victims, the second-largest amount recovered from a fraud, trailing only the Bernie Madoff case.
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Note to Readers: This story has been corrected to indicate TD’s payment resolved a lawsuit filed in Texas, not a lawsuit filed in Canada in which the court found in TD’s favour.
