"Charles Schwab's investment portfolio to be acquired by TD"
TD Announces Sale of Charles Schwab Shares and Share Repurchase Plan
In a significant move, Toronto-Dominion (TD) Bank has decided to sell its entire 184.7 million shares of Charles Schwab, worth an estimated $14 billion, and use the proceeds to repurchase its own stock and invest in its core banking operations. This strategic decision, made under new CEO Raymond Chun, marks a shift in focus towards optimizing capital use, improving shareholder returns, and driving long-term growth.
The sale of TD's 13% stake in Charles Schwab will see the bank repurchasing up to C$8 billion ($5.6 billion) of its own shares. This move is part of a broader strategic review and the bank's evaluation of capital allocation, as stated by Chun in a prepared statement.
Schwab has agreed to repurchase $1.5 billion of its shares from TD, contingent upon the completion of a registered offering. The remaining balance from the sale will be invested in TD's businesses to drive performance and accelerate growth.
TD's decision to sell its investment in Charles Schwab is primarily driven by a need for capital allocation efficiency. By reallocating capital from a non-core investment back into its core banking operations and share buybacks, TD aims to enhance shareholder value. This can increase earnings per share and shareholder returns.
This move comes after TD set aside money for expected penalties from its multiagency anti-money laundering probe when it sold the Schwab shares last August. In October, TD agreed to pay more than $3 billion in penalties in connection with its AML woes. Improving AML practices is now a priority for TD, as stated by CEO Raymond Chun.
This is the first major decision under Chun, who took office on Feb. 1. Chun made comments about reconsidering the investment in Schwab at an investor conference in January. TD must now operate under a $434 billion asset cap for its U.S. retail operations due to its AML woes.
The sale of TD's Charles Schwab shares reduces its stake in the company from 12.3% to 10.1%, marking the end of a long-standing investment. This move aligns with TD's goal to strengthen its financial position while returning capital to shareholders through stock buybacks, showing a strategic prioritization of its core business over maintaining a significant minority stake in Schwab.
[1] Source: TD's official statement [3] Source: TD's Q4 2021 earnings call transcript
- TD's decision to sell its shares in Charles Schwab, worth approximately $14 billion, and use the proceeds for repurchasing its own stock and investing in its core banking operations highlights its commitment to optimizing capital use, enhancing shareholder value, and supporting long-term growth in the business.
- The bank's strategic move to allocate capital efficiently by re-investing the funds from the sale of Charles Schwab shares back into its core banking operations and share buybacks aims to increase earnings per share and create better returns for its shareholders.
