Toronto-Dominion Bank's US franchise is actively pursuing opportunities for growth despite operating under a significant constraint: an asset cap on its American retail-banking operations. Leo Salom, the head of TD's US division, emphasized at a recent conference in Toronto that the bank is undergoing extensive self-assessment and infrastructure review, while building upon its inherent strengths.

For nearly a year, TD's US division has been prohibited from expanding its assets, capped at $434 billion. This restriction stems from its guilty plea in a sweeping anti-money-laundering (AML) probe, and the cap will remain until regulators are satisfied with the remediation of risk and compliance controls. In response, the firm has hired 40 leading AML experts and invested hundreds of millions of dollars into reforms, with most expected to be completed by the end of this year, though a definitive timeline for lifting the asset cap remains unclear.

Despite these limitations, Salom outlined strategic plans to enhance returns and grow specific business lines. The US unit boasts a substantial customer base, including 10 million retail customers and 700,000 small-business and commercial clients. Furthermore, with over $230 billion in deposits, it benefits from a stable source of low-cost funding. TD also maintains deep relationships with entrepreneurs, being the top provider of government-backstopped lending on the East Coast.

To create capacity for new lending within the asset cap, Toronto-Dominion has strategically exited several less-profitable loan portfolios and restructured its bond holdings. By the end of July, its US assets totaled $386 billion, providing $48 billion in "headroom" and successfully achieving the company's target of reducing assets by 10%. Salom expressed confidence that this repositioning provides the capacity for sustained growth at historical or market-expected rates for many years.

Key areas targeted for expansion include credit-card lending and wealth-management services. In credit cards, industry veteran Christopher Fred, hired from Citigroup Inc. in 2022, is leading efforts to integrate digital capabilities and improve underwriting. The bank's partnership with Nordstrom Inc. extends until 2032, and TD also aims to cross-sell more TD-branded cards to its existing checking customers.

Cross-selling is similarly central to the wealth-management growth plan. This low capital-intensity business was not a primary focus in the past due to its partnership with TD Ameritrade, which TD later sold to Charles Schwab Corp. Having divested its remaining stake in Schwab earlier this year, TD is now intensely focused on developing its wealth capabilities, particularly targeting its estimated 3 million mass-affluent clients.

The US division has incurred higher expenses related to these anti-money-laundering investments, a concern noted by some investors following recent fiscal third-quarter earnings. However, Salom believes these expenses will ultimately enhance the bank's overall productivity. Additionally, Toronto-Dominion is implementing cost-cutting measures, including closing 38 US branches and divesting some of its corporate real estate. Further details on these growth plans are anticipated at an investor day scheduled for September 29.

National Bank of Canada analyst Gabriel Dechaine observed that while the stock declined post-earnings due to questions about the US business's performance, investor attention will eventually shift from the process of "creating room" on the balance sheet to evaluating organic growth achieved within the confines of the asset cap.