Friday, March 30, 2007

News from TD Bank's Annual Meeting

The Globe and Mail, Tara Perkins, 30 March 2007

Toronto-Dominion Bank's head office appears to be loosening the apron strings in Quebec, even as it takes a firmer grip on its U.S. division.

"Quebeckers are no different than Americans and Canadians. They value -- as retail banking customers -- convenience, price, and great service," TD chief executive officer Ed Clark told reporters in Montreal after the bank's annual meeting yesterday.

"But, I think if you run that [strategy] in Quebec, and you do not say this is a distinct society, you will not succeed," he said. "And so . . . you have to have a francophone, Quebec-based team that says, 'How do you package that same skill set and sell that in the Quebec market?' " TD is expanding its branch network in Quebec -- where the bank's market share is weak -- by about 7 per cent a year, compared to just 3 per cent for the country as a whole, Mr. Clark said.

The independence granted to TD's management team in Quebec contrasts with the situation in the United States, where TD recently installed Bharat Masrani -- who had been the bank's Toronto-based chief risk officer -- as CEO of the U.S. retail business, TD Banknorth.

That move marked a shift from TD's strategy when it took a majority stake in Banknorth in 2004 and Mr. Clark had emphasized his desire to leave U.S. management running the show.

Mr. Clark and Mr. Masrani spent a chunk of yesterday afternoon engaged in a tête-à-tête in a hotel lobby. Just last week, Banknorth announced plans to cut about 400 jobs and close 24 branches in coming months. TD is in the process of trying to acquire the portion of Banknorth it doesn't already own.

At the annual meeting, Mr. Clark told investors that TD is confident of its ability to compete with the best banks in the U.S. "The measures needed to be successful in the United States are the same as Canada," he said. Those include reducing expenses, having longer hours, better branch locations and cross-selling products.

"It turns out that the best-in-class American banks do all the same things that make us the best retail bank in Canada," Mr. Clark told reporters afterwards, also noting that the majority of Banknorth's management is still American.

He believes all of the "little things" that have boosted TD's Canadian growth in the past four years "will work in the United States, because they work for Wells Fargo, they work for Bank of America, they work for Wachovia, so there's no reason why they can't work for Banknorth."

The U.S. market is changing, and in some ways emulating the Canadian sector, Mr. Clark suggested. "Ultimately, we believe that in the United States this will be dominated by universal banks that look like the Royal Bank here, or TD here, or Wells Fargo."

TD's original strategy with Banknorth was to gobble up acquisitions and reach a decent size before stopping to focus on improving the overall branch model, Mr. Clark suggested.

"Clearly, our original plan was why don't we spend our time consolidating . . .," he said. "Because Banknorth has made 26 acquisitions in a row, it has probably not had the time to spend to make it what we think the best-in-class American banks look like."

Acquisitions in the U.S. are largely on hold for now while Banknorth concentrates on tackling costs. It will then use some of the savings to expand its branch network, do more aggressive marketing, and introduce new products, Mr. Clark said. He seems relieved no attractive acquisition targets are tempting him to deviate from that plan.

"I could get put in a strategic dilemma -- and it would be a real dilemma for me -- if somebody that was really a good target got realistic on their [asking] prices, because then, frankly, I would find that a tough choice to make," he said.
Bloomberg, Sean B. Pasternak, 29 March 2007

Toronto-Dominion Bank, Canada's second-largest lender, plans to adopt a new incentive strategy for its struggling U.S. consumer bank that rewards employees based on customer satisfaction and sales, Chief Executive Officer Edmund Clark said.

The employee program is used by the bank in Canada and by U.S. rival Wells Fargo & Co., Clark told reporters today following the annual meeting of shareholders in Montreal. The system, known as ``Model 4,'' ranks employees by the number of products they sell, and bases pay on customer satisfaction.

``Banknorth doesn't have that model,'' Clark said. ``We can hand them the Wells Fargo sales-management system.'' San Francisco-based Wells Fargo is the biggest bank on the West Coast.

Profit at TD Banknorth Inc. has declined in five of the past seven quarters because of lower demand for loans and higher expenses for acquisitions and advertising.

TD Banknorth, which has about 600 branches in eight states, said on March 23 it was cutting 400 jobs, or about 4 percent of its workforce, and would close as many as 24 branches. The bank aims to cut operating costs by 5 percent to 8 percent by next year.

Clark promoted Bharat Masrani, a former executive at Toronto-Dominion, to run Portland, Maine-based TD Banknorth beginning this month. Masrani helped implement the sales system at Toronto-Dominion in the mid-1990s.

Since becoming CEO of Toronto-Dominion in December 2002, Clark, 59, has increased domestic consumer bank earnings by at least 15 percent a year, higher than any of his Canadian peers.

``Given the success they've had at TD Canada Trust, this should be a critical part of their strengthening the U.S. platform,'' said John Aiken, an analyst at Dundee Securities Corp. in Toronto, who rates Toronto-Dominion shares a ``market neutral.''

Toronto-Dominion also plans to add 50 automated teller machines on campuses across Canada, in responses to concerns raised by Finance Minister Jim Flaherty that students and seniors pay too much in bank-machine fees. The machines will take about one year to install, Clark said.

``We believe Minister Flaherty, in our recent meeting, raised a legitimate concern: In some cases, students are isolated in post-secondary campuses with only one ABM machine available,'' Clark said in a speech at the annual meeting.

Clark added that the bank doesn't have any direct ``exposure'' in Canada or the U.S. to the subprime home loans that have resulted in increased delinquencies for Countrywide Financial Corp. and others. He also said the bank is counting on life insurance sales to help increase profit in Canada.
Bloomberg, Sean B. Pasternak, 29 March 2007

Toronto-Dominion Bank plans to install more bank machines on university campuses, in response to concerns raised by Finance Minister Jim Flaherty that students and seniors pay too much in bank-machine fees.

The bank plans to add 50 automated teller machines on campuses across Canada, said Chief Executive Officer Edmund Clark. Clark said the additional machines will allow students who bank at Toronto-Dominion to avoid transaction fees. He didn't say the Toronto-based bank would lower its fees.

``We believe Minister Flaherty, in our recent meeting, raised a legitimate concern: In some cases, students are isolated in post-secondary campuses with only one ABM machine available,'' Clark said in a speech at the annual meeting in Montreal today.

Flaherty has urged the banks to lower fees, particularly for students and seniors. Lenders usually charge transaction fees when non-clients use their bank machines.

``It's always tempting for governments to quote `solve' issues by legislating lower prices,'' Clark said. ``But the consequences are going to be pretty clear -- less convenience.''
Reuters, 29 March 2007

Being a player in North American retail banking is a better strategy than focusing on U.S. wholesale lending, Toronto-Dominion Bank President and Chief Executive Ed Clark said on Thursday.

Building "sustainable franchises" in both wealth management and retail banking will provide better diversification of earnings and use the bank's "proven skills in these areas," Clark told shareholders at TD Bank's annual meeting in Montreal.

"Clearly, our U.S. strategy sets us apart from other banks," Clark said.

About 80 percent of total earnings at TD Bank, Canada's third-largest bank by market capitalization, comes from its retail operations.

In the United States, its 59 percent-owned TD Banknorth unit, based in Portland, Maine, has been hurt by industry-wide problems that include low long-term bond yields, known as an inverted yield curve, and narrowed spreads.

"The recent subprime (mortgage) meltdown creates credit risk that runs the risk of spilling over into other parts of the market," Clark also said.

Banknorth is concerned about possible "collateral" effects of the subprime market contraction, Clark told reporters after the annual meeting.

For example, a big inventory of unsold houses hanging over the market could depress prices and slow overall mortgage lending growth, he said. "From a bank's point of view, you don't have to have a loan go bad just to have the growth of your loans go down," Clark said.

Short-term U.S. earnings growth will be "tough" given current market conditions, but TD understands retail banking and can compete in the United States by increasing revenues and reducing costs, Clark said.

Last week, Banknorth said it will cut about 400 jobs and close or consolidate up to 24 of about 600 branches. That cost-cutting move will result in a first-quarter charge of up to $17 million.

Minority shareholders of TD Banknorth will vote on April 18 on TD's proposed acquisition of the 41 percent of Banknorth it does not already own.

"With 100 percent ownership or not, we're confident that in a few years investors will look back and be pleased with the position TD Banknorth has achieved," Clark said.

The second prong of TD's U.S. strategy is its 40 percent stake in TD Ameritrade. To remain a top-three player in the U.S. online brokerage business, Ameritrade must maintain leadership in the active trader space and increase its market share in the long-term investor segment, Clark said.

Within Canada, politicians have put pressure on the big banks to reduce automatic bank machine fees. The banks charge a "convenience fee" of C$1.50 per transaction to customers of rival banks.

TD Canada Trust plans to add about 50 bank machines on or near post-secondary campuses across Canada because of a "legitimate concern" over limited access to bank machines on isolated campuses, Clark said.

Governments may be tempted to legislate lower bank-machine fees, but any such move would reduce convenience for consumers, damage the nonbank or "white label" ABM industry, and hurt small businesses who receive rent for putting third-party machines on their premises, Clark said.

White label machines account for about 70 percent of all bank machines in Canada.
Canadian Press, 29 March 2007

TD Bank plans to tough it out in the United States despite short-term earnings challenges, shareholders were told today.

The bank's U.S. holdings include retail operation TD Banknorth and wealth-management firm TD Ameritrade.

While TD Ameritrade recorded its fourth consecutive year of record earnings, retail banking faces several challenges, including narrowed interest-rate spreads and the recent "subprime" mortgage meltdown.

"While these market conditions make short-term earnings growth tough, they'll also create opportunities, said CEO Ed Clark told the bank's annual meeting in Montreal.

"We understand retail banking. We're confident of our ability to compete with the best in the United States. This means focusing on growing revenues and reducing costs."

Clark said becoming more of a North American financial institution will diversify earnings options and help the Toronto-based bank achieve a long-term goal of seven to 10 per cent earnings per share growth.

Over the past couple of years, the bank has grown earnings and dividends by more than that. In 2006, adjusted earnings per share and the dividend both increased by 13 per cent.

"This reflects our philosophy that to consistently outperform on dividends, you have to consistently outperform earnings," Clark said.

Since 2002, adjusted earnings have been increasing on average of 21 per cent per year while average total shareholder return was almost 27 per cent. The bank's improved performance was affected by record-high earnings at TD Canada Trust and TD Meloche Monnex.

The bank has opened more branches in the past three years than the other five banks combined. This year it plans to open 30 branches, including seven in Quebec.