Monday, February 06, 2006

TD Bank Treads Different Path in US

The Toronto Star, Stuart Laidlaw, 6 February 2006

Gotham, Maine—Suzanne Tremble faces a level of competition that few bankers in Canada could even comprehend.

There's the larger and more established Gorham Savings Bank across the street, for one, a few more banks down the road in either direction, a credit union, a couple of brokerages in town attracting customers' investment income and dozens more banks, brokers and credit unions in nearby Portland.

"There's not just one or two banks to choose from," says Tremble, manager of the TD Banknorth branch in this Portland suburb. "There's a million banks they can go to."

Born in Canada, but raised mostly in the United States as her father's career in the oil business moved the family around, Tremble chose to stay in the U.S. when the rest of her family returned to Canada.

Instead, Canada came to her, when Toronto Dominion Bank bought a controlling stake in Banknorth, a leading lender in New England, almost two years ago.

And now, on the tree-lined streets of Gorham, she is playing out her role in two battles: Banknorth's struggle for market share across the U.S. Northeast, and TD's effort to establish a foothold in the highly competitive U.S. market.

Her boss, Banknorth chief executive Bill Ryan, says the stakes are high and the competition tough.

"In America, we have 9,000 banks. So you have 9,000 banks trying to chip customers off," he tells the Star.

Ryan confesses a touch of envy for the relatively stable banking environment in Canada, where five big banks dominate the market.

"The five guys in Canada compete well. They're bright, they're smart, they know what they are doing. The 9,000 guys in America? Not all of them are that bright," he says.

"I always say, `God help us from stupid competition.'"

The sort of competition he worries about most is low interest rates on loans, which steals customers, and high interest rates on bank accounts, which attracts deposits.

And in the U.S., banking is all about attracting deposits.

"To get new deposits is the basis of everything," Tremble says.

Ryan says that's because the current interest rate environment precludes borrowing money from the central bank in order to lend it back out at a higher rate. When interest rates are high, the difference between the rate banks borrow at and the rate they lend at is wider.

But in a low interest rate environment, that margin narrows, making it difficult to make money by lending out money that has been borrowed, so banks turn to attracting deposits. That puts money in their vaults that they can then lend out to their customers.

"It's the fuel for the engine. If you don't have deposits, you're not going anywhere," says Ryan.

To get those deposits, he relies on people like Tremble, a former clothing store manager who uses every angle she can to attract those new accounts.

She has focused her branch, located in the parking lot of Gorham's brand new Hannaford grocery store and adjoining plaza, on serving the needs of small business people.

"I've been there," says Tremble, who worked long hours running a Brooks Brothers store before making the jump to banking a few years ago. "I understand the pressures they are under and their needs."

At night, Tremble teaches adult classes on financial literacy to the citizens of Gorham, part of Banknorth's mantra that its employees give something back to the community.

Having spent more of her business career as a bank customer than a manager, Tremble says such efforts demonstrate that banks are committed to their communities. She also takes part in local March of Dimes and United Way fundraising events and belongs to a local business association.

"It's important to be part of the community," she says.

Boosting deposits will be one of the great challenges facing Ryan as he integrates the newly acquired Hudson United Banks of New Jersey into his chain. At about $32 million (U.S.) each, the Hudson branches, mostly in the suburbs of New York City, average about half the deposits of a typical Banknorth branch.

Ryan hopes he can bring those deposits up to Banknorth standards through a combination of renovations at the 204 new branches, which he got in a $3.8 billion deal that closed last week, longer hours and better service.

"If he does half that, I would be happy," says Salvatore DiMartino, a bank analyst with Bear, Stearns & Co. in New York.

The drive for deposits is fallout of one of the great differences between Canadian and American banks: U.S. lenders do little more than take deposits and lend money, mostly mortgages and lines of credit.

There is virtually none of the mutual fund or retirement savings plan sales that Canadians have come to associate with banks, and which give Canadian banks diverse product ranges that American bankers envy.

"I would love to have some of the Canadian experience in America," Ryan says.

Walk into any Canadian bank unannounced, and you could be meeting with a financial adviser within a few minutes to discuss your investment options.

The same, however, is not true south of the border. In Gorham, for instance, a financial adviser visits the branch one day a week, on Tuesdays. Appointments are set up ahead of time, and he borrows the office of Tremble or her assistant for the day.

In Canadian banks, it is almost expected that the same person who negotiates your mortgage or line of credit can also handle your mutual fund or other investments. At Tremble's Gorham branch, none of the loan managers are licensed to do so.

"People here have brokers," she says.

Canadians might not be used to hearing it, but on this count it would seem we enjoy a much more advanced banking system than our neighbours to the south. The reasons given among bankers and industry observers are not always the same, but their observations are amazingly consistent: Canadians have more stable banks that are able to provide a wider variety of services and products, and with greater convenience.

"You guys are way ahead," says banking professor Dwight Crane at Harvard University.

Crane says the differences in services offered are self-perpetuating. Canada's big banks give people the confidence they will be around for a while, so customers are willing to do more of their financial dealings through one institution.

In the U.S., however, the vast majority of its thousands of banks are much smaller than Canada's predominant banks, so customers tend to spread their banking and investment business around as a hedge against their banks collapsing or being taken over.

As well, Crane says, the move to privately run pension plans — RRSPs in Canada and 401(k)s in the United States — evolved differently in the two countries. While RRSPs are most often bought outside of work, often at a bank, 401(k)s are often purchased through a person's employer using a broker.

"The banks here may have missed a great opportunity" to get in on the trend to privately run retirement investments over company-run pension plans, he says.

Ryan says it is not so simple. In fact, it's kind of a chicken-and-egg situation. If customers aren't looking to banks to help them make their investments, there's only so far bankers can push them toward getting more financial service in one place.

And trying to do so, he says, would mean swimming against a cultural tide.

"We'll never be able to duplicate the Canadian experience in terms of having full-service customers."