Canada-based TD Bank Group has announced plans to divest its 10.1% equity stake in Charles Schwab through a registered offering and a share repurchase agreement.
Despite the divestment, TD Bank will maintain its business relationship with Schwab through the Insured Deposit Account (IDA) agreement.
Currently, TD Bank holds 184.7 million shares of Schwab’s common stock. As part of the transaction, Schwab has agreed to repurchase 19.2 million of its shares from TD Bank for a total of $1.5bn, subject to the completion of the offering.
The remaining 165.4 million shares will be sold through a registered secondary offering at $79.25 per share. A preliminary prospectus supplement related to the offering will be filed with the US Securities and Exchange Commission (SEC).
The divestiture is anticipated to generate net proceeds of approximately C$20bn ($13.95bn) after taxes and underwriting discounts, releasing around 247 basis points (bps) of Common Equity Tier 1 (CET1) capital.
TD Bank intends to allocate C$8bn ($5.58bn) towards a share buyback programme, pending regulatory approval, which is expected to contribute 116 bps to CET1 capital.
The remaining proceeds will be reinvested in TD Bank’s business operations to support customers and drive growth.
The decision to divest its Schwab stake follows a strategic review by TD Bank, undertaken after a significant regulatory fine in the US. The bank is also looking to comply with new asset cap regulations by selling certain holdings.
TD Bank group president and CEO Raymond Chun said: “As part of our strategic review, we have been evaluating capital allocation and have made the decision to exit our Schwab investment. We are very pleased with the strong return we are generating on the Schwab shares we acquired in 2020.”
Subject to customary conditions, the sale is anticipated to be completed on 12 February 2025.
TD Securities and Goldman Sachs will serve as joint bookrunning managers for the transaction.
In a separate transaction, Bank of America has reportedly agreed to acquire a $9bn portfolio of residential jumbo mortgage loans from TD Bank.
The portfolio consists of loans from US homeowners with high credit scores that exceed conventional loan limits, making them ineligible for government-backed programmes. Discussions over the sale are ongoing.
