TD Securities Pushes U.S. Investment Banking Growth Amid Canadian Equity Strains

The recent performance and strategy unveiled by TD Bank indicate a clear pivot: investment banking and capital markets—especially in the U.S.—are now positioned as the primary engines for future growth. This shift is fueled by regulatory constraints on its U.S. retail operations (including an asset cap and heightened AML oversight), which limit expansion and profitability in that segment. Thus, TD sees global markets, convertible equities, automated trading, and advisory services as areas where it can drive higher margins and returns—hence the push to raise TD Securities’ adjusted return on equity from about 9 % toward 13 % by fiscal 2029.

However, this strategy brings internal tensions and risks. Canadian staff and operations reportedly feel deprioritized—through pay compression, fewer resources, and slower digital or automation progress—relative to U.S. units under the new Cowen-led structure. While senior management argues that leadership and opportunities remain balanced, the perception of favoritism risks hurting morale and retention among long-standing Canadian employees.

From a financial and regulatory standpoint, TD is navigating headwinds. The $3.09 billion U.S. fine and associated asset cap are binding constraints. In response, TD is restructuring its U.S. balance sheet (reducing assets about 10 %), ditching or winding down non-core or low return portfolios such as point-of-sale financing, and selling investments including its Charles Schwab stake. These actions both free up capital and mitigate compliance risk, but may also reduce near-term revenue in non-core segments.

Strategically, TD’s medium-term financial targets—~16 % adjusted ROE, 7 %-10 % EPS growth, and strong capital ratios by fiscal 2029—highlight that TD sees its investment banking ambitions as central to achieving investor expectations. The reintroduction of growth targets, once AML obligations are satisfied, suggests confidence but hinges on successful execution, particularly given regulatory scrutiny, competition in U.S. capital markets, and the costs of automation and talent acquisition.

Key open questions include:

• Will TD succeed in narrowing the ROE gap between its Canadian and U.S. operations sufficiently to justify this strategic shift?
• How sustainable are the cost savings, given investment needs in compliance, automation, and hiring in competitive U.S. markets?
• How will clients in Canada respond if TD shifts more capital, resources, and focus to U.S. markets?
• What regulatory developments (AML enforcement, asset cap adjustments, capital ratios) could either constrain or enable TD’s longer-term ambitions?