24 October 2006

TD Banknorth Names Masrani as CEO

Financial Post, Duncan Mavin, 24 October 2006

Toronto-Dominion Bank's role in replacing the chief executive of its U.S. retail banking subsidiary with a Canadian manager is a strategic about-face, analysts said.

Portland, Maine-based TD Banknorth said 19-year TD banker Bharat Masrani will become the next chief executive in March, 2007, replacing local Banknorth-veteran Bill Ryan who will stay on as chairman.

The appointment is "a 180-degree turn" for TD, which bought a stake in Banknorth in March, 2005, said a banking analyst yesterday who did not wish to be named. He said the move marks a change from TD's earlier strategy of relying on local management to run Banknorth, in which it has a 56% stake.

When TD announced it was going to buy a piece of Banknorth in 2004, TD chief executive Ed Clark said it was crucial to "find a management team that I can bet my reputation on, and the bank's capital on, to say, 'Drive our U.S. strategy, with our help.'"

Genuity Capital Markets analyst Mario Mendonca also said "an interesting element" of TD's initial investment in the U.S. bank was that its strategy contrasted with that of Canadian rival Royal Bank of Canada, which effectively swallowed its U.S.-based RBC Centura subsidiary whole. It was hoped that by retaining a local management team at Banknorth, TD would avoid some of the pitfalls that have beset RBC's investment, he said.

TD spokesman Neil Parmenter said Mr. Masrani will still report to Mr. Ryan because of his position at the head of the bank's board. He also said the request for Mr. Masrani to be made chief executive was initiated by Banknorth's management rather than by TD.

A spokesman for Banknorth confirmed part of the compensation Banknorth executives received from TD's acquisition of the company is dependent on them remaining as employees of the bank for a certain time. For instance, Mr. Ryan will receive certain "deferred change-of-control payments" in March, 2008.

Both Mr. Ryan and Mr. Masrani have tough propositions in their new roles at the TD subsidiary, which has shown signs of weakness in recent months.

Mr. Masrani, who became president of the Portland-based bank only last month, will concentrate on running the day-to- day operations, while Mr. Ryan will focus on looking for acquisitions to expand the business.

Mr. Ryan said the prospects for finding suitable acquisition targets had "gotten worse, not better" in recent months.

Mr. Masrani -- formerly TD's chief risk officer -- has his work cut out to improve performance at Banknorth. In September, the bank issued a warning that rising costs and increased competition will cut into third-quarter profits.
The Globe and Mail, Sinclair Stewart, 24 October 2006

Former Toronto-Dominion Bank chief risk officer Bharat Masrani was tapped yesterday as the next chief executive officer of TD Banknorth, a sign the Canadian bank is taking a more hands-on approach with its U.S. subsidiary amid a challenging economic environment.

Bill Ryan -- the colourful CEO who has transformed Portland, Me.-based TD Banknorth, through a series of fast acquisitions, from a small New England player to one of the leading retail banks in the northeastern United States -- said yesterday he will give up his executive role next March. However, he will remain as chairman until 2010.

Mr. Ryan is known more for his skills as a deal maker than an operator, and he said he's making the move so he can focus all of his efforts on scouting out further potential acquisitions in the region.

His replacement, Mr. Masrani, was dispatched to Maine only last month to become president of TD Banknorth, overseeing day-to-day operations of its various business lines.

His jump to the CEO post, which came faster than many observers had expected, coincides with a period of weak performance at the U.S. bank.

The company has warned that third-quarter profit, to be reported tomorrow, will be lower than expected, caused by a potent combination of unfriendly interest rates and fierce competition.

TD Bank chief executive officer Ed Clark acknowledged recently that TD Banknorth will likely slow the pace of acquisitions until it can improve its financial results.

"So far, Ed's excellent adventure hasn't worked all that well," said one Canadian bank analyst, discussing the expansion strategy. "Clearly, the lack of sophistication in U.S. banking, and TD Banknorth in particular, has surprised them a bit."

The executive shuffle did raise some questions about the TD Banknorth management team, a group TD heralded when it bought the company for $5-billion in 2004. Despite this praise, TD put one of its own people in a successor role, rather than replace Mr. Ryan locally.

Mr. Masrani, 50, said succession issues at banks can be complicated when they grow as quickly as TD Banknorth has, virtually quadrupling its assets to more than $40-billion (U.S.) since 2004.

"It's a great management team -- we've said that from day one," Mr. Masrani said. "I think what we are looking at here is focusing on the overall CEO job . . . It was felt that this would add depth as the succession planning continues."

He added that Mr. Ryan will spend "120 per cent" of his time on building relationships with prospective merger partners, making it all but impossible for him to continue as CEO.

"He felt that to try to do this and run the bank was just not viable," Mr. Masrani said.

Several analysts who follow TD Bank believe it is tightening its grip on Banknorth's direction with Mr. Masrani's elevation to the CEO job.

Mr. Masrani is not regarded as a retail banking expert, but these analysts suggested he should nevertheless be able to help Banknorth improve its operational performance.
Bloomberg, Sean B. Pasternak and Doug Alexander, 23 October 2006

TD Banknorth Inc., the U.S. consumer banking unit of Toronto-Dominion Bank whose profit has declined the past two years, named Bharat Masrani as chief executive officer, replacing William Ryan.

Masrani, who joined TD Banknorth last month as president, will replace Ryan on March 1, the Portland, Maine-based company said today in a statement. Ryan, 62, will remain chairman until 2010.

TD Banknorth's annual profits have declined since reporting net income of $351 million in 2003. The bank said in September that third-quarter earnings may be below analysts' estimates because commercial loan demand has leveled off after 17 interest rate increases by the U.S. Federal Reserve.

"There has been a series of disappointments in terms of TD Banknorth," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier in Toronto, which manages the equivalent of about $3.2 billion including Toronto-Dominion shares. "TD is trying to get a little firmer hand in place in the direction of TD Banknorth's day-to-day operations."

Ryan, CEO since 1990, will focus on acquisitions as chairman. Ryan completed 27 takeovers for TD Banknorth, including a $1.9 billion purchase of Mahwah, New Jersey-based Hudson United Bancorp. He also spent $1.6 billion to buy nine banks in New York and New England since 2002.

Toronto-Dominion, Canada's second-biggest bank by assets, owns 57 percent of TD Banknorth after buying a controlling stake in the firm last year for $3.5 billion in cash and stock.

Masrani, 50, joined Toronto-Dominion in 1987 and held several management positions in commercial, corporate banking and global wealth management, including vice-chairman and chief risk officer in Toronto. He was appointed by Toronto-Dominion in November 2002 to help exit about C$11 billion ($9.8 billion) in corporate loans, which he reduced ahead of schedule.

Masrani said he intends to focus on the "bread-and- butter" side of banking as CEO to weather a "tough economic environment" in the U.S., while pursuing the bank's strategy of internal growth and improving operations.

"It's going to be a long grind and to do what matters here is to focus on customers, customer service, ensuring that we've got the right product mix," he said today in an interview. The bank is scheduled to report earnings on Oct. 25.