07 May 2009

TD Bank Seeks Post-Crisis ‘Momentum,’ CEO Says

Bloomberg, Sean B. Pasternak, 7 May 2009

Toronto-Dominion Bank, Canada’s second-largest bank by assets, may grow during the recession and will come out of the economic crisis with “momentum,” Chief Executive Officer Edmund Clark said.

The bank won’t pull back on its core strategic activities and will “continue to invest so we can come out of this with a lot of momentum,” Clark, 61, said today at the Barclays Capital Financial Services Conference in London.

Toronto-Dominion has spent more than $15 billion over the past four years to expand in the U.S., including purchases of Portland, Maine-based TD Banknorth and Cherry Hill, New Jersey- based Commerce Bancorp. The Wall Street Journal reported last month that Toronto-Dominion may join with Goldman Sachs Group Inc. in a bid for Florida’s BankUnited Financial Corp.

There is still opportunity in the U.S. for a “retail universal bank,” Clark said. Toronto-Dominion says it has more branches in the U.S. than in Canada.

Clark told investors last month that earnings in 2009 may be little changed from last year as loan-loss provisions increase. In the fiscal first quarter, Toronto-Dominion’s net income fell 27 percent to C$712 million, or 82 cents a share.

Today, Clark said the biggest issue on the horizon is the “threat” to lending spreads. The threat will ease if interest rate cuts are over, and banks will do “less well” if rates continue to fall, he said.
Financial Post, Eoin Callan, 7 May 2009

As the United States prepares to disclose the results of stress tests of the biggest American banks Thursday, federal officials are looking to Bay Street to assist them with recapitalizing their country's weakened banking system.

U.S. authorities see Canada's top banks as leading candidates to step in and acquire institutions that will struggle to survive and thrive on their own, according to federal officials and bankers.

The fresh dialogue between officials and Bay Street suggests regulators are prepared to brave a backlash on Capitol Hill by orchestrating takeovers by foreign institutions of American banks that have been kept alive with taxpayer support.

An early test of Canadian banks' ability to navigate the political and regulatory minefield and emerge with worthy assets may come in the next several weeks as authorities decide the fate of a small Florida bank seen as a natural fit with the American footprint of TD Bank Financial Group, Canada's second-largest bank.

BankUnited, the Coral Gables-based lender, has lost 98% of its value and is on the critically-ill list of the Federal Deposit Insurance Corporation and Office of Thrift Supervision, according to court documents and regulatory filings.

While the bank has only a few dozen branches, the delicate negotiations underway to rescue the institution could produce a model for bigger deals.

One option being explored by authorities is to sell BankUnited's branches and deposits to TD, while splitting off the bank's toxic assets and selling them separately along with government guarantees to a distressed debt fund run by Goldman Sachs.

While rival private equity groups focused on securing up to $14.3-billion in distressed assets have sought to make TD's foreign status a sticking point, a U.S government official said authorities looked favourably on solutions that addressed the interests of both taxpayers and depositors.

There is also high-level political support for Canadian banks to use the financial crisis as an opportunity to grow beyond their borders.

Prime Minister Stephen Harper gave his backing on a recent media tour of the U.S. to a foreign shopping spree by Bay Street institutions. U.S. President Barack Obama has also cited "strong regulation" by Canada of its banks as an example for America to follow.

But executing complex transactions that involve hard-to-value assets and large potential liabilities has so far proved beyond the gift of Canadian banks and their advisors.

A series of attempts at cut price acquisitions in the U.S. by Bay Street since the onset of the crisis have had to be abandoned, with the assets falling to American bidders.

Even if deals can be struck to hand over small regional lenders, it may not be possible for Canadian banks to use these transactions as templates for bigger acquisitions, said a person at a Bay Street bank that was forced to abandon such a bid in the autumn.

"At the end of the day, we just weren't big enough to take on the risks," said the person.

However, TD's chief executive Ed Clark may fare better than rivals after several years of building strong working relationships with influential U.S. figures.

The executive is potentially the best positioned to seal deals after the US$8.5-billion acquisition of Commerce Bancorp in 2007 and the US$3.8-billion purchase of Banknorth Group Inc. in 2006, two deals in which Goldman Sachs played a pivotal role behind the scenes.