The handling of suspicious customer transactions was behind the Toronto-Dominion Bank's $13.4 billion bid to buy First Horizon, according to a source close to the matter.
The banks called off the proposed union Thursday, citing uncertainty over whether and when they could receive regulatory approvals, without being more specific. The reluctance by the Office of the Comptroller of the Currency and the Federal Reserve to give TD a clean bill of health on its anti-money laundering practices proved to be the biggest hurdle, they said.
TD had pledged to regulators that it would make its anti-money laundering policies more comprehensive and timely, but it wasn't enough to win approval for the deal.
TD works diligently to prevent criminals from using the bank for illegal activity, to strengthen its risk management programs on an ongoing basis, and to protect the interests of our customers, the bank, and the financial system, a spokeswoman said in an emailed statement.
TD said it agreed to buy First Horizon for $25 a share in February 2022 in a deal that would have created one of the six-largest U.S. lenders. The banks said they were expecting to complete the transaction by January. In February, the two nations agreed to delay the deadline for the deal's close until May 27. First Horizon then revealed in a March regulatory filing that TD had informed the bank it no longer anticipated the deal to win regulatory approval in time for that and couldn't predict a closing date anymore.
First Horizon shares fell 33% to $10.06 on Thursday after the banks scuttled the deal. The company has a market value of just under $6 billion.
Financial services lawyers said it is unusual for U.S. regulators to block bank mergers outright. The government cites concerns over M&T Bank's anti-money laundering policies in its review of its 2012 deal to acquire Hudson City Bancorp, before ultimately approving the deal, three years after it was announced.
The bank's problem with its anti-money laundering methods is the latest in a series of regulatory and legal difficulties the bank has encountered in the U.S. in recent years.
In 2020, the Bank reached an $122 million settlement with the Consumer Financial Protection Bureau, alleging that it had charged customers overdraft fees for ATM and one-time debit-card transactions without their consent.
In February, TD agreed to pay $1.2 billion to settle claims related to the bank's involvement in R. Allen Stanford's two-decade-long Ponzi scheme.