TD Bank (NYSE:TD) price target was cut at Stifel as investor concerns that the planned purchase of First Horizon (NYSE:FHN) may be blocked by U.S. regulators are likely to persist around the Canadian bank.
TD Bank's (TD) PT was cut to C$93 from C$97 by Stifel analyst Mike Rizvanovic, who has a hold rating on TD, wrote in a note on Wednesday. TD ticked down 0.8%, while FHN was unchanged.
"Ongoing risks around the FHN acquisition potentially being blocked by U.S. regulators are reflected in the sizable discount of FHN's share price relative to TD's offer price, and are not likely to subside any time soon," Rizvanovic wrote. "We expect that uncertainty to remain an overhang on TD's shares for the foreseeable future, justifying a modest relative valuation discount to its Big Six peers."
The Stifel price target comes after U.S. lawmakers last month asked a banking regulator to block Toronto-Dominion's (TD) planned $13.4 billion acquisition. Sen. Elizabeth Warren (D-MA) sent a letter to the Office of the Comptroller of the Currency, asking the regulator to block the transaction over concerns about aggressive sales tactics.
Rizvanovic wrote that based on data from the Consumer Protection Bureau that Stifel looked at, the number of complaints against TD related to the "account opened as a result of fraud category" increased "dramatically" through the pandemic and was "well above" U.S. peers.
"That could potentially indicate a larger issue at TD related to this type of sales practice, although on a positive note, we find that such complaints against TD have declined sharply in recent months since peaking in Feb 2022," Rizvanovic wrote.
FHN's stock is trading at a "sizeable" 16% discount to the TD offer price of $25/share, though that is below the peak discount of 21% in mid June and well above the 6% discount when the deal was first disclosed, Rizvanovic noted.
A BofA analyst last month said the transaction may see an extended timeline due to regulatory scrutiny. The most likely impact from the increased scrutiny is that deal close may be extended beyond management's current Q1 2023 target, BoFA analyst Ebrahim Poonawala, who has a buy rating, wrote.
"While it is hard to fully handicap how this will play-out, the anecdotal nature of the allegations reported in the news article and the fact that regulators completed a review of sales practices at US banks in the aftermath of the issues that surfaced at Wells Fargo suggests to us that it is unlikely that this was a widespread systemic issue at TD," Poonawala wrote last month.