Wednesday, March 21, 2007

News from NB Financial Services Conference

Bloomberg, Sean B. Pasternak, 21 March 2007

Bank of Nova Scotia, Canada's third-biggest bank, expects ``meaningful'' earnings from its Asian expansion in five to 10 years, Chief Executive Officer Richard Waugh said.

Scotiabank, as the lender is known, has operations in 11 Asian countries and announced on March 18 it was in talks to buy as much as 20 percent of China's Bank of Dalian Co. Terms of the transaction haven't been discussed, Waugh said.

``I don't think Asia will be meaningful in our financial earnings in the short term, but it will be important to us in the long term,'' Waugh said today in an interview in New York. He defined ``long-term'' as five to 10 years.

Waugh has been expanding outside Canada, spending more than C$1 billion ($865.7 million) on takeovers in the last year in regions such as Latin America and Asia. International banking helped boost earnings by 20 percent in the first quarter to C$1.02 billion, with about a third of profit from abroad. Scotiabank owns the sixth-largest bank in Mexico and the third- largest in Peru.

The Toronto-based bank also has operations in countries including India, Japan, Korea, Thailand and Vietnam, according to its Web site.

Expansion ``will have to be through acquisitions, which in Asia today are still very difficult,'' Waugh said, citing ownership and regulatory constraints.

In China, where the government in December opened the banking market to allow foreign banks such as Citigroup Inc. and HSBC Holdings Plc to lend and take deposits in the local currency, Scotiabank owns a 5 percent stake in Xi'an City Commercial Bank with International Finance Corp.

Waugh, 59, declined to say whether the bank plans to exercise an option to increase its stake in Xi'an City to 12.5 percent.

China lets foreign financial firms own a combined 25 percent of a local bank, with a single investor capped at 20 percent. A foreign lender can invest in up to two Chinese banks.

Waugh said the bank doesn't plan to expand into U.S. consumer lending, even though the bank has North American ``bookends'' in Canada and Mexico.

``I don't see anything in the short run,'' Waugh said. ``Some time, if we believe we can make great use of our capital, if we can either get value or bring value to the U.S., it might be of interest.''
Bloomberg, Sean B. Pasternak, 21 March 2007

Bank of Nova Scotia, Canada's third-largest bank, expects mutual fund sales from its branches to double this year from a year ago, said Barbara Mason, executive vice president of wealth management.

The Toronto-based bank has added advisers and improved its technology for selling funds in its branches, Mason said today at an investor conference in Montreal sponsored by National Bank Financial. She didn't say how much revenue the bank earned from that segment.

The Scotia Securities mutual fund arm is the smallest among Canada's five main banks, with net sales of C$245 million ($211 million) in February, according to the Investment Funds Institute of Canada. Royal Bank of Canada's RBC Asset Management unit had sales of C$1.53 billion in the same period.

``Increasing the size and scale of our wealth-management platform is a primary focus of our management team,'' Mason said.

The bank will also continue to look at acquisitions and joint ventures in asset management, she said.
Reuters, 21 March 2007

As banks start to look and act more like retail shops, Royal Bank of Canada will take steps to outdistance its domestic banking rivals, a senior executive said on Wednesday.

"Among Canadian banks, we have been taking more than our share of revenue growth, and we believe we can continue to do so," Jim Westlake, group head of Canadian banking, told a financial services conference.

Royal Bank, Canada's largest, is "in every business, in every part of the country, with leading market shares," and plans to build on its distribution strength, Westlake said.

It has also worked to foster a "sales culture" that Westlake said was critical to the bank's success.

"I think that banks are looking more like traditional retailers than they ever have in the past," he said.

Aside from products and services, RBC looks at trying to get the best locations for its branches, and plans to set up more adjacent insurance branches in high-growth areas.

"What does your branch look like, how are you staffing that, what are the sales resources that you're putting into it? ... It starts to sound a little more like Wal-Mart or Shopper's Drug Mart or Canadian Tire, in some respects, than it does like traditional branch banking," Westlake said.

Since Canadian banks are not permitted to promote insurance products within their branches, RBC has set up insurance operations next door to some retail branches.

It could open 30 to 40 insurance branches this year, with most focus on Ontario, Quebec and Alberta, Westlake said.

"Every time we open a new (bank) branch, we assess whether it would be a good spot for an adjacent insurance branch," Westlake said. "Every time we do a refresh or are doing some renovations ... if some space becomes available, we'll take a look and say, 'does that make sense?'."

Auto insurance is the key product that brings traffic in the door, so British Columbia, Saskatchewan and Manitoba are less attractive because they have provincially run auto-insurance systems, he noted.

At its first insurance branch in east Toronto, some 40 percent of sales are to non-Royal Bank customers, Westlake pointed out.

"If you choose locations with heavy traffic, you can generate brand new clients, and under the perverse rules of our land, we can refer those to the bank once they become insurance clients," he said.
Reuters, 21 March 2007

Canadian Imperial Bank of Commerce will back moves by its FirstCaribbean International Bank unit to make acquisitions, likely in the English-speaking Caribbean, CIBC's top executive said on Wednesday.

"They are looking at consolidation within the region," CIBC president and chief executive Gerry McCaughey said at an investor conference. "FirstCaribbean has a history of small acquisitions, they have worked well," and CIBC supports deals of that type, he said.

CIBC, Canada's fifth-largest bank, picked up an additional 8.5 percent stake in FirstCaribbean in February, bringing its ownership stake to 91.5 percent, but FirstCaribbean still operates as an independent public bank, McCaughey said.

The Caribbean bank, headquartered in Barbados, could also grow by expanding certain products and services, such as wealth management, that are not yet as popular as they are in North America, he said.

"Growth (in wealth management) could be above the rates of growth that we're accustomed to in the Canadian marketplace, because it's earlier days in terms of the maturation of the wealth opportunities in their market," he said.

Meanwhile, CIBC will continue to review its quarterly dividend for possible increases, McCaughey also told the financial services conference, organized by National Bank Financial.

CIBC's first quarter dividend payout ratio, at 33 percent, was below its objective of 40 percent to 50 percent.

"We're aware that we are lagging in that regard," McCaughey said. But the bank had not rushed to boost its dividend because it was building up capital to pay for the FirstCaribbean deal, he said.
Reuters, 21 March 2007

Bank of Montreal , which has been losing market share in the Canadian mortgage market, plans to focus on proprietary mortgage channels to turn the business around, a senior executive said on Wednesday.

The bank is no longer buying third-party mortgages and in the past month it decided to stop using mortgage brokers, Frank Techar, the bank's head of Canadian personal and commercial banking, said at a conference.

Bank of Montreal said it will stop using brokers because their business, although profitable, brings in the lowest spread, and because it confuses consumers who see BMO-branded mortgages offered at different rates.

"I don't think that lends itself to a very good customer experience," Techar told a financial services conference organized by National Bank Financial.

Also, trying to develop a broader banking relationship with customers who are brought in through mortgage brokers takes too much time and attention, he said.

Although dropping brokers might hurt market share slightly in the short term, "we're going to reinvest in our proprietary channels and we're going to get back into the marketplace for those valuable relationships," Techar said.

Bank of Montreal, the country's fourth-largest bank, has 180 mortgage specialists in its branches and plans to increase that number, Techar said. It also plans to boost its financial planning staff, and is taking a "hard look" at adding to its small business sales force.

The moves come after the bank said it would lay off 1,000 other staff this year, mostly in positions that do not deal directly with customers.

Techar said the bank has good momentum in certain aspects of the Canadian personal and commercial banking business. It has a No. 3 market position in credit cards and is strong in the "upper end" of the commercial banking market, although weaker at the small-business end, he said.
Reuters, 21 March 2007

Toronto-Dominion Bank still sees room to boost its profits within the Canadian personal and commercial banking market, despite perception that the domestic market offers few growth opportunities, a senior executive said on Wednesday.

TD Canada Trust, the retail arm of the bank, expects to grow in "under-penetrated businesses" such as credit cards, small business and commercial loans, and full-service brokerage, Tim Hockey, group head of personal banking and co-chair of TD Canada Trust, said at an investor conference.

Bank officials frequently hear that the outlook for Canadian retail banking is dim because "bust-out" retail strategies are limited in the mature, slowly growing market.

"We would like to think with the results that we've had over the last number of years, that we actually have disproved that theory," Hockey said at a financial services conference in Montreal organized by National Bank Financial.

TD posted 17 percent earnings growth in its Canadian retail business last year, versus an average of 11 percent growth at its four big Canadian bank peers, Hockey noted.

Geographically, the province of Quebec is a "super growth opportunity" for TD Canada Trust, and the bank is skewing its energies toward growing faster in Quebec, Hockey also said.

"We don't have as high a presence, given the population base, that we should have in Quebec."

The bank is holding its annual shareholders meeting in Montreal next week.

Toronto-Dominion, Canada's third largest bank by market capitalization, has a "natural" 20 percent to 22 percent market share in most domestic retail products, Hockey said.

But in credit cards, it only has a 7.5 percent share of the Canadian market, he said.

"If we have a 21 percent share or 20 percent share of the bank account business, why shouldn't we have about that amount of the credit card (business)."

When TD acquired Canada Trust in 1999, it divested the combined operation's MasterCard business and kept Visa credit cards. Only about 40 percent of TD's domestic customers currently hold a TD-issued credit card, Hockey noted. By cross-selling to existing customers, "that number should get north of 50 percent and 60 percent over the next few years."

In 2006, TD Canada Trust opened 31 new branches in Canada, and it plans to open "30-plus" across the country later this year.

"You might think that's a bit of an oxymoron in the days of Internet banking and telephone banking, but in fact we still believe that customers do care about walking into their branch," Hockey said.

TD Canada Trust's skill in running "very good distribution systems" will be transferable to its United States operation, he also said. The bank plans to take its Portland, Maine-based TD Banknorth retail unit private over the next few months.

Banknorth shareholders will vote April 18 on TD's proposal to acquire the rest of Banknorth that it does not already own.