TD Securities taking $96M hit on mispricing blamed on individual in London

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TORONTO - Toronto-Dominion Bank (TSX:TD) has disclosed a $96-million loss caused by "incorrectly priced" financial investments at its operations in London

Canada's second-biggest bank by assets said yesterday the employee involved with the pricing at its TD Securities business in London "is no longer with the company" and the Toronto bank is co-operating with Canadian and British regulators investigating the matter.

TD did not say whether the losses were linked to trading mistakes or whether any wrongdoing or criminal activity was involved.

In fact, TD spokeswoman Simone Philogene said she could provide very little information about the former employee due to privacy considerations.

"What I can tell you is we had a senior trader in our London office leave our employ on Monday June the 23rd and upon transitioning his accountabilities we identified incorrectly priced financial instruments," Philogene said.

The financial instruments were credit index swaps -- complex futures or derivatives contracts used by traders to spread credit risks.

"It's an account we trade for the bank, so there's no client money involved," Philogene said.

The bank is working with British and Canadian regulators, she said.

The TD loss is nothing like the five-billion-euro hit suffered in January by French bank Societe Generale attributed to rogue activity by trader Jerome Kerviel.

But it is an embarrassment for TD, which has prided itself on avoiding much of the trouble which has engulfed other banks worldwide since a global credit crunch swept the financial sector last summer.

"We are very disappointed that this has occurred," TD Bank Financial Group chief executive officer Ed Clark said in a brief statement which provided no information about the malfunction or the individual involved.

"Our company has a strong risk culture and we deeply regret this incident. We take this very seriously and will make every effort to ensure that this doesn't happen again."

TD Bank was widely hailed by analysts earlier this year for its tight risk-management practices, which helped the financial institution avoid the massive debt writedowns that dragged its five main Canadian rivals to post billions of dollars in losses linked to the subprime-mortgage market in the United States.

Many banks like CIBC (TSX:CM), National (TSX:NA) and others invested heavily in securities that were backed by subprime mortgages or other risky assets that lost much of their value after the U.S. housing sector collapse produced a credit squeeze around the world.

The TD Bank charge is not a large one, amounting to only about 11 per cent of the bank's C$852 million net profit in the second quarter ended April 30.

TD will report its fiscal third quarter results Aug. 28 and may include the latest charge in its finances then.

Friday's news had no discernible impact on the share price of the bank, which has $503.6 billion in assets and ranks behind Royal Bank among Canada's largest lenders.

TD shares were up 13 cents at $63.47 on the TSX, with a 52-week range between $77.10 and $58.57.