The U.S. banking giant Bank of America (NYSE: BAC) has agreed to purchase a $9 billion portfolio of residential mortgage loans from Toronto-Dominion Bank (TSX: TD, NYSE: TD), a person familiar with the matter said on Friday.
The move comes as TD looks to streamline its balance sheet and shed certain loan portfolios following a $3 billion settlement over anti-money laundering violations in the U.S. last year.
TD’s balance sheet overhaul continues
At a January banking conference, TD’s CEO Raymond Chun signaled the bank’s intent to exit some loan portfolios, underscoring its ongoing strategic shift after regulatory setbacks.
“This decision aligns with our broader strategy of optimizing our balance sheet and ensuring we allocate capital efficiently,” Chun said at the time.
The Canadian lender, which has built a strong U.S. retail banking footprint with over 1,100 branches and 10 million customers, is now under a regulatory-imposed asset cap that limits its expansion.
“TD is in a position where it must be more selective in its U.S. growth strategy, and selling parts of its loan book makes sense in that context,” said John Aiken, banking analyst at Barclays, in a client note.
The sale to Bank of America suggests TD is making decisive moves to free up capital and focus on its core banking operations.
Market reaction and TD’s stock movement
Shares of TD Bank (TSX: TD) initially fell 1.2% in early trading after the news but later recovered to close down 0.5% at C$81.45 on Friday. Analysts attributed the initial drop to investor concerns over TD’s broader restructuring, though the stock rebounded as markets processed the strategic nature of the sale.
Bank of America (NYSE: BAC) saw a 0.8% gain on the day, closing at $34.65, as investors viewed the acquisition as a sign of the bank expanding its mortgage lending footprint amid a cooling housing market.
“This is a win-win transaction,” said Mike Mayo, senior banking analyst at Wells Fargo, in an interview with Bloomberg. “TD gets to lighten its balance sheet, while Bank of America secures a solid mortgage portfolio at a time when loan growth is slowing.”
More details on the transaction are expected as both banks finalize terms in the coming weeks.