07:23 AM EDT, 10/11/2024 (MT Newswires) -- TD Bank (TD.TO, TD) and U.S. regulators on Thursday disclosed the details of the global settlement related to anti-money laundering (AML) issues. The financial impact of the items outlined by TD - including asset reduction, higher AML compliance costs) - are in-line with the company's current 2025 forecasts, National Bank said, adding that the restrictions and penalties could weigh on the stock long-term.

TD had already identified US$500 million of compliance costs in fiscal 2025 (already in National's forecasts), but this figure could be repeated in fiscal 2026, analyst Gabriel Dechaine notes.

An asset cap restriction also limits the growth potential of TD's U.S. P&C operation, which has accounted for 30% of its earnings over the past year, Dechaine writes. The bank plans to trim its U.S. asset base by 10% in order to "create capacity to continue to serve our customers while maintaining buffer to asset cap." This is expected to cut pre-tax NII by US$200-225 million over fiscal 2025.

TD expects to offset the revenue erosion via the sale of lower yielding securities and subsequent re-investment into higher yielding ones. This is forecast to generate a revenue uplift of US$300-500 million in fiscal 2025 and will more than offset the impact of asset/loan reductions.

National Bank rates TD sector perform with a $78 target price.