TD Bank Makes Big Money Off Real Estate Banking

The Globe and Mail, Tim Kiladze, 10 December 2012

The hot real estate market is boosting the fortunes of Toronto-Dominion Bank.

More than any other Canadian bank, TD has tied itself to the real estate market, ramping up corporate lending to the sector and cashing in on a flurry of equity offerings for real estate investment trusts.

As of early December, the bank’s capital markets arm ranks third in the overall equity league tables, according to Bloomberg, but has the highest share of real estate equity deals, topping even league table leader RBC Dominion Securities. In calendar 2012, TD’s share of equity offerings – after splitting co-lead status amongst all bookrunners – is about $1.6-billion. RBC’s share, which is the second highest, is just north of $1.4-billion.

The same story played out last year, as real estate underwriting helped drive TD to the top of the equity league tables.

TD can thank the Dundee family of REITs for its success. Nearly two-thirds of TD’s $1.6-billion share of real estate deals came out of Dundee REIT, Dundee International REIT and Dundee Industrial REIT.

But the bank is also heavily weighted to real estate in its corporate lending book. As of fiscal year end, TD had about $33-billion in loans outstanding to real estate companies, comprising 31 per cent of its total corporate and government loan book. That’s the highest total and percentage in the Big Five. Bank of Nova Scotia’s loans are more heavily skewed to financial services and retail, while Bank of Montreal’s are more heavily weighted toward service industries and manufacturing.

RBC – TD’s biggest rival – currently has about $21-billion of loans outstanding to real estate companies, comprising about 23 per cent of its corporate lending book.

The question now is how much longer the strength will last. While the real estate sector in Canada has been incredibly hot and retail investors still can’t get enough of their REITs, every sector has its ebbs and flows. Nothing stays hot forever. Just look at the dearth of mining deals for proof.

However, on the corporate lending side, about 30 per cent of TD’s real estate loans are to U.S. companies. Expanding that business could pay off if the U.S. real estate recovery takes shape the way so many people expect it to.

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Behind Scotiabank's Global Push

The Wall Street Journal, Caroline Van Hasselt, 5 December 2012

Canadian bankers haven't been shy about seizing on the global financial crisis, snapping up assets from U.S. and European peers scrambling to raise cash. None have done so as aggressively as Rick Waugh, chief executive of Bank of Nova Scotia.

The bank is Canada's third-largest by assets, often overshadowed by its bigger and better-known competitors, Royal Bank of Canada and Toronto-Dominion Bank. RBC is pushing to build a world-class investment-banking franchise, while TD Bank has focused on US growth.

But in recent years, Scotiabank has quietly bought up an international portfolio of personal- and commercial-banking assets far surpassing those competitors, while bolstering its retail presence in Canada. Over the past five years, Mr. Waugh has clinched 30 acquisitions, valued at more than $15 billion, by the bank's estimates.

The buying binge puts Scotiabank at No. 2 in the world, behind U.S. Bancorp, in the number of banking deals since 2007, according to Dealogic. It ranks No. 5 for the period, by value, counting only disclosed deals.

"They have really said, 'We are going to be an international bank and be in a position to take advantage of the growth of emerging markets,'" said Paul Cantor, the former chief of National Trust Co., a Canadian lender that Scotiabank bought in 1997.

The overseas acquisitions have helped boost revenue and profit at a time when Scotiabank — which reports quarterly results Friday — and its Canadian peers have struggled to offset weak capital-markets and wealth-management profits. Domestic, retail-banking profits have been strong, but after several years of low interest rates here, Canadians have loaded up on debt. Many economists say they are now tapped out, with lending recently shrinking. Banks have looked abroad for new growth.

Revenue from Scotiabank's international personal and commercial banking surpassed its Canadian banking revenues last quarter for the second quarter in a row, though the domestic unit remains more profitable. The international unit accounted for 26% of the bank's net income last quarter. Overseas profits have grown 46% since 2007, outstripping the domestic retail division's 30% profit growth over the same period.

Mr. Waugh closed his biggest deal — the 3.1 billion Canadian dollar ($3.16 billion) purchase of ING Groep NV's Canadian unit—just a few weeks after elevating a longtime Scotiabank executive as president. That lieutenant is now widely tipped to take over as CEO in as little as a year's time.

Nearing the end of his tenure, the 64-year-old Mr. Waugh (who turns 65 later in December) has more than doubled the bank's assets to some $700 billion since taking over in 2003. Most of that increase has come in the years following the economic crisis.

Mr. Waugh, in an interview, says his push is an extension of the bank's longtime overseas-focused strategy, based on conservative and local personal and commercial businesses.

"It's very straightforward and conservative, but underpinning it is diversification," he said. "It's having the right risk appetite and staying to your fundamental business."

Mr. Waugh has tended to pick off assets in countries from the Caribbean, where the bank has long had a foothold, to emerging markets from Mexico and Brazil to Vietnam and Thailand. His purchases have come from the likes of BNP Paribas SA, Royal Bank of Scotland Group PLC, and Commerzbank AG, as those banks sought to shore up capital or repay government bailouts.

Scotiabank has also moved aggressively into China, agreeing last year to purchase a 20% stake in Bank of Guangzhou. And the bank already has an 18.1% stake in Xi'an City Commercial Bank and owns a 33% stake in a joint-venture fund-management company with Bank of Beijing Co.

But the strategy also carries risks, tethering the bank's fortunes more than many of its peers to the developing world. "It remains to be seen whether by going into all these different countries, whether that's going to pay off well," said Stephen Jarislowsky, chief executive of Jarislowsky Fraser Ltd., one of Scotiabank's largest investors.

After Mr. Waugh's first job as a Scotiabank teller in a strip mall in his hometown of Winnipeg, he quickly rose up the ladder. He moved to Scotiabank headquarters in Toronto, and then around the bank in several, increasingly senior positions — a way the bank's top management has long tested rising stars.

After taking over international and wealth management in 1998, he impressed then-CEO Peter Godsoe by focusing his energies looking for overseas expansion potential, instead of the domestic market. Mr. Waugh is known to preside over marathon meetings, debating and poring over details of potential deals. He's also notorious for mangling names and phrases and mixing metaphors, malapropisms that have come to be known inside the bank as "Rick-isms."

Despite his push to set Scotiabank up for the future, Mr. Waugh holds on to some of the 180-year-old's bank old-world traditions. He marks up documents in red — a carry-over from a Scotiabank tradition of identifying senior managers' input in paper work by the color of their pencils. His expected successor—Brian Porter, who took on Mr. Waugh's title as president on November 1 — uses brown.

Scotiabank was set up in Halifax, the capital of the Canadian province of Nova Scotia, almost two centuries ago. It financed trade in sugar, rum and fish between the West Indies, the U.K. and Canada. It opened an office in Kingston, Jamaica, in 1889, eight years before opening a branch in Toronto. It now operates more branches overseas than in Canada.

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