TD Bank (TSX:TD)fell more than five per cent on Tuesday, one day after the bank said it will take a $600-million charge to cover bad loans and post a fourth quarter loss.

The stock closed down $1.70 at $29.50 on the TSX. After dipping as low as $28.18 shortly after the start of trading, the stock gradually regained ground throughout the session.

After the close of trading on Monday, TD said it expects to post a loss in the fourth quarter and will take a $600-million charge to cover off bad loans.

TD to split loan portfolio into two groups

"Our existing credit challenges have been aggravated by recent further deterioration in the utilities sector," Charles Baillie, the bank's chairman and CEO, said in a release.

The bank said it expects to lose 31 to 36 cents per share for the fourth quarter when it reports its financial results at the end of the month.

As part of a new strategy to get out of hard-hit sectors, the bank said it will divide its loan portfolio and take a $600 million one-time charge to cover the division.

"We will now have one unit for on-going operations with core clients and one for businesses with non-core clients that we want to exit over time," Ed Clark, the president and chief operating officer of TD, said.

The bank said non-core loans are roughly $11 billion, or half of its total corporate loans. About 55 per cent of those loans are to the telecommunications and utilities sectors and are primarily non-Canadian clients, TD said.

The bank also said it is raising its loan-loss provision for the quarter to $350 million from the previously-forecast $175 million. Roughly $263 million will go against the loan of three clients in the utility sector.

TD will also draw $185 million from the $600 million telecom sector loan provision it announced in July. In that month, the bank took an $850 million charge to cover bad corporate loans, especially to the telecom sector.

In the wake of TD's announcement, Standard & Poor's Ratings Services said it was putting its outlook on the bank under review "with negative implications."

TD lost $428 million or 67 cents a share in the third quarter.