UPDATE 3-TD Bank hit by UK derivatives charge; trader leaves

(Adds details, background, closing share price)

By Lynne Olver

TORONTO, July 4 (Reuters) - Toronto-Dominion Bank (TD.TO: Quote, Profile, Research, Stock Buzz), Canada's second-largest bank, said on Friday it will take a pretax charge of about C$96 million ($94 million) for the mispricing of derivatives by a senior trader who has left the London office of its investment dealer unit.

TD Bank said that the charge in its TD Securities unit was tied to credit derivatives that were not properly priced, and said the unnamed trader left the bank on June 23.

TD discovered the mispriced credit index swaps the same day, spokeswoman Simone Philogene said.

The bank said it was cooperating with regulators.

A spokeswoman for Britain's Financial Services Authority said that it does not comment on individual firms.

TD Bank President and Chief Executive Ed Clark said the bank was "very disappointed" with the loss.

"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 shares closed down 25 Canadian cents, or 0.4 percent, at C$63.09 a share on the Toronto Stock Exchange on Friday.

Analysts said investors would probably overlook the charge, even though it exceeds the C$93 million in wholesale banking profit that TD reported in the second quarter.

"I think in this case, TD has done extremely well through the credit crunch so far, and I don't think people are going to change their assessment of the risk management culture yet," said Ohad Lederer, a banking analyst at Veritas Investment Research in Toronto.

In June, Wall Street bank Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) said it had suspended a London-based credit trader who had overvalued positions by $120 million, prompting a writedown of the same amount, and in May, Lehman Brothers Holdings Inc LEH.N suspended two London equities traders after identifying a similar problem.

TD has largely steered clear of harm during the credit crisis, in part because retail banking in Canada and the United States makes up the bulk of its operations.

In the most recent quarter, which ended April 30, retail businesses produced about 90 percent of the bank's total profit of C$852 million.

TD Securities does currency and international fixed income trading in London, as well as institutional equity sales and trading.