22 July 2012

TD Bank Looks to Fill the Gap in US Banking

Financial Times, Tom Braithwaite and Tracy Alloway, 22 July 2012

An 80-year-old former games show host hammily promotes the bank with a rictus grin.

Its slogan is “America’s most convenient bank” and, with its Sunday opening hours, it has a fair claim to the title.

But although the company wraps itself in American cheesiness and service standards, it is a Canadian group, TD Bank, that is in full invasion mode.

TD’s growth in the US is part of a trend that is redrawing the map of overseas financial groups’ presence in the country.

According to interviews and an FT analysis of Federal Reserve data, the Canadians are coming in a big way. Meanwhile, some eurozone banks are packing up and many more are selling loans and shrinking as they fight fires on the home front.

For the past few years more of TD’s green and white logos have been put up in US cities as the bank opens accounts and writes mortgages, taking market share from American groups such as Bank of America. “We have completely eclipsed the US peers over that period,” says a confident Colleen Johnston, chief financial officer of TD.

In 2000 TD had $21bn of assets in the US. By 2009, after a series of acquisitions, it was at $170bn. Over the following three years, as US banks such as Bank of America struggled in the crisis and Europeans reduced their presence, TD continued to grow, reaching $251bn of assets, according to the most recent Fed data.

Today Canadian bank assets in the US stand at $654bn, outstripping French banks at $373bn, which have traditionally had a much larger presence.

BNP Paribas shares TD’s colour scheme but not its plans. Though it retains a sizeable presence in the US, with a big wholesale banking operation and a California-based retail bank, Bank of the West, the French bank has been selling assets.

“US banks get their US dollars a lot cheaper these days than the European banks,” says Guido Van Hauwermeiren, head of international coverage, who has had to rethink strategy since the eurozone crisis flared up last summer. “The train went off the track circa August last year and we have been addressing this issue ever since with high liquidity costs.”

Among its deleveraging actions, BNP has sold an energy business to Wells Fargo, one of the few large US banks healthy enough to pursue acquisitions.

While part of the impetus is the need to strengthen capital, a related factor is a lack of dollars. With huge retail operations, US banks have access to plentiful dollar funding in the form of deposits, but many eurozone competitors are reliant on the more fickle funding of money market funds.

“The money market funds that used to be big depositors with European banks took their deposits away from these institutions,” says Mr Van Hawermeiren. “That exacerbated a stress for US dollars for European banks. European banks are revisiting and deleveraging their US dollar consuming operations.”

A US-based executive for another large European bank says: “If you were to say the European banks are pulling in the size of the balance sheets, everyone and their mother is doing that since the crisis – we were criticised for being over-levered and as a liquidity risk management perspective the size of your balance sheet and how much you can actually fund is finite.”

But he insists his bank and other large competitors are trimming their sails, rather than abandoning ship: “In terms of leaving the US or not leaving the US, we would not be spending time, effort and money figuring out US regulatory reform and what we need to do to be compliant if we were pulling out."

The emergent forces in US banking are not just Canadians like TD or stronger megabanks like Wells Fargo.

Capital One, the Virginia-based lender, is another big acquirer. In the past 12 months it bought branches from HSBC and acquired ING’s online banking business.

Much of the global map is being redrawn along national lines, and even stronger groups face increased scepticism from regulators worried about crossborder banking operations.

One key question for the US banking industry is whether Chinese lenders will start to play an important role. Five years ago only $4.4bn of US assets were identified as belonging to Chinese banks. That number has soared to $63.8 billion. While that is still insignificant compared with Canada, it could be the tip of the spear.

In May Industrial & Commercial Bank of China gained US approval to purchase the US subsidiary of Hong Kong’s Bank of East Asia. It was the first time the Fed allowed a Chinese institution to buy an American bank.

Though Chinese lenders – which include the world’s biggest banks by market capitalisation – have taken only a few tentative steps in this direction so far, in time they could join their Canadian peers in the new land grab in the US.