08:06 AM EDT, 05/03/2024 (MT Newswires) -- National Bank has cut its one year target on TD Bank to $84 (from $92) but kept its Sector Perform rating on what it terms "the nature of risks TD is facing."

On Thursday, the Wall Street Journal detailed TD's money laundering activities that were connected to the illicit drug trade. Analyst Gabriel Dechaine expects that, based on the severity of the allegations contained in the WSJ report, TD could not only face cumulative fines that could could top US$2 billion, but also be issued with consent orders that might impact its day-to-day operations and financial performance. and be more damaging longer-term.

According to Dechaine, consent orders can not only place limits on a bank's balance sheet growth and inflate the compliance cost burden, they can also impact a bank's operations for many years. "In our worst-case scenario analysis, we estimate this issue could erode TD's future earnings potential by over $1 billion. In present value dollars, this figure represents 7% of 2024E consensus EPS."

TD this week disclosed it had taken an initial US$450 million provision related to the U.S. investigation of its money laundering activities. The bank also faces investigations by two other regulators and the Department of Justice., which Dechaine notes has a history of imposing hefty fines.