TD CEO voluntarily reduces pay amidst anti-money-laundering investigation

Executive's compensation dipped to $13.4m

TD CEO voluntarily reduces pay amidst anti-money-laundering investigation

Toronto-Dominion (TD) Bank’s chief executive officer, Bharat Masrani, opted to slash his pay last year. This decision came in light of the lender’s abandoned acquisition bid for First Horizon Corp. and the ongoing probe it confronts concerning anti-money-laundering protocols.

The annual proxy circular filed by the Canadian bank on Tuesday revealed Masrani’s action. The CEO recommended and the board endorsed a substantial reduction of C$1 million ($740,000) in his direct compensation for fiscal 2023. Consequently, his total compensation for the year amounted to C$13.4 million, down from the C$15.1 million he received in 2022.

TD Bank’s plans for expansion in the United States were thwarted when the proposed $13.4 billion acquisition of Memphis-based First Horizon was abandoned in May 2023, according to Bloomberg. The termination was prompted by mounting inquiries from US regulators and law enforcement agencies regarding the bank’s handling of suspicious customer transactions, casting uncertainty on the deal’s closure.

Analysts project that the ongoing investigation, which remains unresolved, could result in a substantial fine ranging from $500 million to $1 billion. TD has already disclosed significant expenditures, amounting to hundreds of millions of dollars, allocated towards enhancing its risk management and control infrastructure.

Bank to address shortcomings

In a letter addressed to shareholders within the company’s annual report, Masrani expressed disappointment over the identified shortcomings in the bank’s anti-money-laundering control environment. However, he said he was optimistic about addressing these challenges effectively over time.

“It was disappointing that some shortcomings in our anti-money-laundering control environment were identified during the year, which we are working hard to address, and I am confident that in time we will,” Masrani noted.

The decision to terminate the First Horizon deal was characterized as difficult yet prudent given the circumstances by Masrani. The uncertainty surrounding the approval timeline prompted mutual agreement between TD and First Horizon to abandon the transaction.

Despite falling short of earnings targets, Masrani’s leadership during a tumultuous year was acknowledged by the board. While his direct compensation was reduced not only due to the failed acquisition but also because the bank missed its earnings target, his leadership qualities were lauded.

Masrani’s voluntary pay cut aligns with a broader trend among Canada’s major banks, where CEOs experienced reduced compensation in the face of challenging operating environments. Only Royal Bank’s Dave McKay surpassed his target for direct compensation in fiscal 2023.

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