Thursday, March 30, 2006

TD to Stay Focused on US Despite Headwinds

Bloomberg, 30 March 2006

Toronto-Dominion Bank, Canada's No. 2 lender, will focus this year on making at least one acquisition in the U.S. and bolstering its investment-banking unit, Chief Executive Officer Edmund Clark said.

TD Banknorth, Toronto-Dominion's U.S. lender, will have ``opportunities'' to make purchases, Clark said in an interview today following the annual meeting in Vancouver.

``I think we will get some opportunities over the next year because the environment is tough'' for smaller banks, Clark said. ``I think we'll have some real choices.''

Toronto-Dominion bought control of TD Banknorth last year for about $3.5 billion, its first consumer-banking presence in the U.S. TD Banknorth has since purchased Mahwah, New Jersey- based Hudson United Bancorp for about $1.9 billion, and has said it plans to make one or two purchases a year.

Toronto-Dominion also wants to expand its TD Securities investment bank, which ranked fifth in Canada for equity and equity-linked deals last year, and was 10th in mergers advice, according to data compiled by Bloomberg.

``How do we get more people on the front line in investment banking who know more CEOs and have better relationships in order to build that part of the franchise?'' Clark said. ``That will be our next big focus.''

Clark also said the bank will expand its asset-management business on its own rather than make acquisitions. Canadian lenders such as Bank of Nova Scotia have been looking at ways to expand their fund businesses to take market share from mutual fund companies.

Goodwill Costs

``The value added we're getting through organic growth is pretty phenomenal,'' Clark said. ``When you compare that with the economics of acquiring someone and paying a bunch of goodwill, it's not obvious the economics work for us.''

The banks increased their share of the country's C$570 billion ($491.2 billion) fund market to about 35 percent last year from 25 percent in 2000, according to the Investment Funds Institute of Canada.

Toronto-Dominion owns the fifth-largest fund company in Canada and has been No. 2 in net sales of long-term mutual funds for three years, Clark said at the meeting. Profit from asset management climbed 41 percent to C$138 million in the fiscal first quarter.

CI Financial Inc. Chief Executive Officer William Holland said in January he expects Canada's five main banks to buy fund companies to continue their expansion.

Two years ago at the bank's annual meeting in Edmonton, Alberta, wealth management head William Hatanaka said Toronto- Dominion would consider buying fund companies.

Clark, 58, also today urged the federal government to relax a ban prohibiting banks from selling insurance in their branches so that consumers can get more information.

Insurance Competition

Canadian banks are pushing for insurance rules changes to compete with insurers such as Manulife Financial Corp. and ING Canada Inc. Banks can sell insurance over the Internet and through brokers, but can't sell in branches.

Clark said the Toronto-based lender isn't seeking the right to sell insurance in branches, but wants to be able to provide information to clients about its insurance products.

``We're the only country in the world that has these rules,'' Clark said. ``Everyone knows we should (be able to) do this. The question is, is there any political will to do these minor sort of changes?''

Clark said he doesn't expect the government to remove its ban on bank mergers among the five largest lenders anytime soon. He said Prime Minister Stephen Harper, who was elected in January, has outlined his five policy priorities.

``Bank mergers is not one of them,'' Clark said.
Canadian Press, Craig Wong, 30 March 2006

Troubles in the American banking industry could open up acquisition opportunities south of the border for Toronto-Dominion Bank's business in the northeastern United States, chief executive Ed Clark said Thursday.

Banking in the United States is having a rough ride is recent months with rising short-term interest rates being a negative for growth at TD Banknorth, Clark said.

But the TD CEO said that same bad environment is creating opportunities for acquisitions by the regional bank.

“Organizations that are operating in there that are small, and in the long run, don't think that they are going to be survivors are saying, ‘Am I going to hang around and survive for the next two years when it is ugly or should I maybe get out now,”' Clark said after the bank's annual meeting.

“Canadian banks have sat back and not built sustainable franchises in the United States and I think if you want to be a North American bank that's what you have to do. So, I think if we find the right strategic fit, we'll take advantage of it.”

TD Bank acquired a 51 per cent stake in TD Banknorth last year for $3.8 billion (U.S.) as a vehicle for its expansion in the United States. Since then, TD Banknorth bought Hudson United Bancorp of New Jersey for $1.9 billion in cash and shares in a deal backed by its parent company.

Expansion into the United States has proven troublesome for some Canadian banks in the past.

Royal Bank's subsidiary RBC Centura has had disappointing results since Canada's largest bank bought the small North Carolina-based retail network for about $3.3 billion in 2001 Meanwhile, CIBC has rid itself of much of its U.S. operations in recent years including the sale of its Oppenheimer wealth management business and the closure of its Amicus U.S. electronic banking operation, which entailed half a billion dollars' worth of restructuring charges.

But Clark remains convinced his bank's strategy with TD Banknorth and stake in TD Ameritrade is the right one.

“We've focused in on the northeastern United States and we've focused in on the online brokerage business,” he said.

RBC Capital Markets analyst Jamie Keating has suggested the Hudson United acquisition will add about one third to TD Banknorth's revenue and earnings, however work still needs to be done.

“The U.S. bank, while profitable on a run-rate basis, is still costing the bank in terms of restructuring charges and economic profit,” Keating wrote in a research note to clients.

Clark's attention to growth in the U.S. follows signals from Ottawa that new rules on mergers between Canada's banks are not one of the five main priorities for the minority Conservative government.

But he said changes still could and should be made that would allow Canada's banks to give out information about insurance products in branches, refer customers and market insurance products to customers who need it.

“The insurance industry would be better off and the consumer would be better off,” Clark said.

“This is a regulatory change. It is not a big thing. There's no public policy dispute on this. You bring in any expert and they'll all say, this is a no-brainer.”

TD Bank reported last month a first-quarter profit of $2.3 billion or $3.20 a diluted share, thanks to a huge gain from selling control of its U.S. retail brokerage. The profit compared with $630 million or 95 cents a year ago.

The bank's decision to sell TD Waterhouse Group Inc.'s U.S. retail brokerage business to on-line broker Ameritrade Holding Corp. resulted in a $1.67-billion after-tax gain.

Reuters, Cameron French, 30 March 2006

Toronto-Dominion Bank said on Thursday it plans to stick with building its U.S. Northeast retail bank franchise despite a difficult profit environment in the sector.

"We're going to be prudent, we're not going to go do something stupid," chief executive Ed Clark told Reuters after the bank's annual meeting in Vancouver. "On the other hand, you have to sit there and say you do actually think there's a limited window of time here that you can go into the United States

"So we're hoping ... this tough environment will throw up things that are perfect for us strategically, at reasonable prices."

With domestic bank mergers currently not allowed, TD, Canada's No. 2 bank by assets, has focused its growth aspirations on the United States. It acquired a majority stake in Maine-based Banknorth last year and sold its Waterhouse USA discount broker to Ameritrade Holdings Inc. in exchange for an about one-third stake in the combined company.

Banknorth has since acquired New-Jersey-based Hudson United Bancorp, and Clark said he expects the U.S. retail franchise to have a market capitalization of $10 billion to $15 billion within five years.

Profits from Banknorth, however, have lagged expectations, prompting some analysts to question whether TD might alter its strategy.

Speaking to Reuters after the meeting, TD Banknorth chief executive William Ryan said he didn't expect much improvement in the U.S. business until 2007. The segment has suffered from the declining gap between -- and recent inversion of -- short- and long-term U.S. interest rates.

But he said the integration of Hudson United was going better than expected, and that Banknorth was already capable of going after other acquisition targets.

TD has been making money hand-over-fist from its domestic branch-banking business, and has also seen improved profit from its mutual fund business. While the bank has plenty of excess capital to handle acquisitions, Clark said he prefers to grow the fund business organically and use the capital to expand the bank's U.S. presence.

Speaking at the meeting, Clark also called for reforms in Canadian rules that prevent banks from selling most kinds of insurance through their branches.

The bank has had success in the sector with its profitable property and casualty insurer, Meloche Monnex.

Public bank policy discussions in Canada have largely focused on whether to allow mergers of big banks or "cross-pillar" mergers of banks and insurers.

But Clarke said that he doesn't expect much immediate progress on those fronts, and that rule-makers should focus on smaller changes, such as allowing banks to give information about insurance products through their branches, which they are currently not allowed to do.

"We're getting a clear message from the government that (mergers) are just not a priority," he said.

"The way we look at it is: can we tweak the rules?"
Reuters, 30 March 2006

TD Banknorth's integration of recently acquired Hudson United Bancorp is going better than expected, and the bank is capable of handling more acquisitions immediately, its chief executive said on Thursday.

"I feel very comfortable with where we are with the Hudson United conversion that we could look at banks right now," TD Banknorth chief executive William Ryan told Reuters after the Toronto-Dominion Bank annual meeting.