February 18, 2025

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TD CEO steps down early amid push by investors to overhaul leadership

TD CEO steps down early amid push by investors to overhaul leadership
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CEO Bharat Masrani will depart earlier than planned on Feb. 1.Fred Lum/The Globe and Mail

Toronto-Dominion Bank TD-T chief executive officer Bharat Masrani is stepping down more than two months ahead of schedule as the bank launches an overhaul of its board – rare moves linked to U.S. regulatory penalties for anti-money-laundering failures.

Investors have pressed for a swifter changing of the guard at the bank, and Friday’s shakeup sweeps the board of long-standing directors who oversaw the decade when criminal organizations laundered money through TD’s U.S. business. Meanwhile, the bank is just beginning to address the expansive scope of requirements imposed by U.S. authorities last fall, including an order to hire a third-party firm to conduct an independent review of its board of directors and management.

Bay Street has been signalling that TD needed to speed up its response to the barriers put in place by regulators, including demands for accountability among the leaders who allowed the money-laundering breaches to persist, according to several sources. Shareholders have been pressing the bank to install a new CEO immediately to focus on putting a turnaround plan in place.

The Globe is not identifying the sources because they are not authorized to speak publicly.

The bank’s share price losses deepened after U.S. regulators unveiled penalties in early October, including fines of US$3-billion and restrictions on the bank’s ability to grow in that market. Friday’s unprecedented governance shakeup and executive pay cuts are the latest fallout as TD begins the process of repairing its operations and reputation.

The staggering revelations have led to two of TD’s most tenured leaders leaving the bank earlier than anticipated. Mr. Masrani will leave his role as CEO on Feb. 1, ahead of the departure date initially set for April 10. Alan MacGibbon, who joined TD’s board in 2014 and became the chair less than a year ago, will step down later this year as the bank conducts a search for his successor.

Mr. MacGibbon was announced as board chair in November, 2023, when former chair Brian Levitt left after 15 years. Prior to taking on the role in February, Mr. MacGibbon oversaw the audit committee, which is responsible for supervising TD’s compliance and anti-money-laundering operations.

“This is TD actually actively listening to what their shareholders are asking for,” Jefferies analyst John Aiken said in an interview. “At the end of the day, a lot of the issues do land at Bharat’s feet – fairly or unfairly. Pushing him out the door sooner rather than later and peeling back his compensation are all talking points that every investor was stressing with TD.”

TD’s share price jumped 4.4 per cent on Friday on the Toronto Stock Exchange, the biggest gain among its Canadian peers.

As the previous chief risk officer and head of TD’s U.S. arm, Mr. Masrani’s tenure was previously marked as an era of focus on compliance and controls. That legacy changed in October when TD pleaded guilty to conspiracy to commit money laundering after a decade of moving funds for criminal organizations and neglecting warnings from employees. Mr. Masrani will act as an adviser until July 31.

Incoming CEO Raymond Chun has taken centre stage in recent months, fielding questions about the bank’s strategic overhaul and remediation efforts during the lender’s quarterly earnings conference call in December and a banking conference earlier this month.

Mr. Chun, currently chief operating officer, will step into the role of CEO on April 10, more than two months ahead of schedule.

In a statement Friday, Mr. MacGibbon said Mr. Chun “has moved quickly and decisively” to launch a review of the bank’s strategy, and thanked Mr. Masrani for his “contributions to TD’s success.”

The bank declined an interview request from The Globe and Mail.

As part of the penalties from U.S. regulators last year, the Federal Reserve Board required the bank to hire a third-party firm to conduct an independent review of the bank’s board of directors and management.

TD also announced Friday it is reducing the amount of time a director can sit on the board. Directors are still subject to a 10-year time limit, but previously could request an extension for an additional five years. That discretionary term extension has been reduced to two years.

TD said five long-standing directors will vacate their seats on the board. At the bank’s annual shareholder meeting in April, shareholders are set to vote on whether the directors should be re-elected.

Senior leaders had concluded that some of the directors leaving the board would face challenges getting re-elected, or could receive weak support, which added to the sense of urgency to make major changes, according to one source with knowledge of the bank’s thinking.

Amy Brinkley, Colleen Goggins, Karen Maidment, Claude Mongeau and Brian Ferguson will leave on April 10. The remaining directors have joined the board since 2020.

Some of these departing members were tasked with overseeing the bank’s compliance and risk procedures. Mr. Ferguson sat on the board’s audit committee. Ms. Brinkley, Ms. Maidment and Ms. Goggins were members of the risk committee, tasked with approving the bank’s risk frameworks and policies.

Ms. Maidment, Mr. Mongeau and Mr. MacGibbon were also on the human-resources committee, which conducted the CEO search that ultimately led to Mr. Chun’s promotion.

When the anti-money-laundering failures were unveiled, the U.S. Department of Justice said that TD’s audit committee was mostly filled with directors who did not have extensive banking experience.

TD announced four new members are joining the board, including two that previously worked at U.S. banks in compliance, risk and anti-money-laundering.

Frank Pearn was the global chief compliance officer at JPMorgan Chase and Co., and Paul Wirth was the deputy chief financial officer at Morgan Stanley. The board also added two Canada-based directors, including Elio Luongo, former CEO of audit and advisory firm KPMG Canada, and Nathalie Palladitcheff, former CEO of investment group Ivanhoé Cambridge.

The board also formed a remediation committee to oversee the bank’s progress in addressing the anti-money-laundering gaps.

“TD’s board was viewed as a bit inattentive and in need of a shakeup,” National Bank analyst Gabriel Dechaine said in an interview. He added that the new board members “seem to be of the right type of pedigree for the situation.”

“It’s an obvious benefit to the bank in general, but its also to signal to regulators that they’re making the changes to the board composition that fit the situation.”

TD said it has adjusted executive compensation “to reflect the seriousness of the U.S. AML failures, the associated costs to the bank, and the limitations imposed on the U.S. retail business.”

In a major shift from Mr. Masrani’s minor compensation reduction in 2023, his pay was slashed last year. He received no cash incentive award or equity compensation for 2024, which reduced his total direct compensation by 89 per cent, to $1.5-million from $13.3-million the year prior.

The pay cuts were extensive. Forty-one executives, including former staff, received reductions to their variable compensation, totalling $30-million, including those that oversaw front-line operations, control functions and internal audit. Variable compensation for TD’s most senior executives was reduced by at least 25 per cent from the target amount.

“This tells you that you have a company that’s extremely serious about appreciating how big of a lapse this was,” Bank of America analyst Ebrahim Poonawala said in an interview. “The reaction today – for the first time since this issue came up – feels satisfactory. The pain you’ve taken as a shareholder is being reflected in changes we are seeing at the leadership level at the very top.”

With a report from James Bradshaw

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