Toronto-Dominion Error to Cut Profit by C$96 Million

By Sean B. Pasternak

July 4 (Bloomberg) -- Toronto-Dominion Bank, Canada's second-largest lender, said one of its traders in London incorrectly priced credit derivatives, costing the bank about C$96 million ($94.3 million) in pretax earnings.

The employee linked to the pricing error, a senior male trader, left TD Securities on June 23 when the mistake was discovered, bank spokeswoman Simone Philogène said today in a telephone interview from Toronto. She declined to name the employee.

``We are very disappointed that this has occurred,'' Chief Executive Officer Ed Clark said in a statement. ``Our company has a strong risk culture, and we deeply regret this incident.''

Toronto-Dominion has avoided debt writedowns in the last year, while its five biggest competitors in Canada have recorded combined costs of about C$10 billion related to the U.S. subprime mortgage market.

``It's too bad; it's such a small amount yet it sort of spoils the track record,'' said Blackmont Capital Inc. analyst Brad Smith. ``It's got to be a disappointment to management, who've rightfully pointed to their ability to sidestep a lot of these problems.''

The Toronto-based bank reported the incident to the Financial Services Authority in the U.K. and Canada's Office of the Superintendent of Financial Institutions, Philogène said. The bank is cooperating with authorities.

Toronto-Dominion's estimated charge is equal to about 11 percent of its C$852 million in second-quarter net income. The lender is scheduled to release third-quarter earnings on Aug. 28.

Toronto-Dominion fell 25 cents to C$63.09 at 4:10 p.m. in trading on the Toronto Stock Exchange.

To contact the reporter on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net.