03 April 2013

TD Bank Faces Loss of Luster

The Wall Street Journal, Suzanne Kapner, 3 April 2013

For two decades, Joanny Campbell of South Philadelphia was satisfied with her bank.

Then her lender, New Jersey's Commerce Bank, was acquired by TD Bank NA, a unit of Toronto-Dominion Bank of Canada. The parent company had no U.S. locations as recently as 2000 but now operates the ninth-largest U.S. bank by assets, a major player in large cities including New York and Boston.

Unhappy with customer service, Ms. Campbell closed her TD account late last year.

"The Commerce employees called me by name," said the 38-year-old Ms. Campbell. "The TD employees didn't know me, and they didn't care to know me."

A TD Bank representative declined to comment on specific interactions with customers.

Ms. Campbell's decision to find a new bank highlights the challenges facing TD as it looks to build on an expansion nearly unmatched in the banking industry, at a time of slow economic growth, profit-crunching low interest rates and intense competition.

The company bills itself as America's Most Convenient Bank, with unusually long hours and many branches open every day except New Year's Day, Easter, Thanksgiving and Christmas. Its branch count has surged 23% in the past five years, a time in which many other large lenders have retrenched.

Toronto-Dominion said Wednesday that the architect of its U.S. expansion, Chief Executive Ed Clark, will retire next year and be succeeded by Bharat Masrani, TD's U.S. head of personal and commercial banking, who has pledged to keep the company expanding.

"If there are three banks on each corner of an intersection and the fourth corner is unoccupied, we would love to have that corner," Mr. Masrani told The Wall Street Journal in January.

But TD's profitability has lagged behind that of many of its peers, and the company's once-sterling reputation for customer service has declined since the 2008 purchase of Commerce.

Although TD Bank NA's net income increased 14% in 2012, to $775 million, compared with $681 million earned the prior year, 90% of its peer group earned more, according to the Federal Deposit Insurance Corp. TD says the numbers reflect in part its low-risk strategy.

Toronto-Dominion avoided getting hit in the U.S. mortgage meltdown, thanks to its conservative lending practices. But some analysts say competition has intensified now that large U.S. rivals have recovered from the crisis.

"It was easier to take share away when competitors were struggling," said Brian Klock, an analyst with Keefe, Bruyette & Woods. "Now, the competition has woken up, and it's going to be a tougher fight."

Mr. Masrani said he is satisfied with TD's performance relative to other banks. "I feel as long as we grow our franchise in the U.S., the returns will take care of themselves," he said Wednesday.

Both Commerce and TD were known for their attention to customers. TD retained some popular Commerce practices, operating coin counters known as Penny Arcades and giving customers pens, dog biscuits and lollipops.

But the products and pricing changed. TD increased minimum-balance requirements on some accounts and started charging for out-of-network ATM use. And it made no apologies about aggressively peddling mortgage and credit-card loans to account holders, a practice known as cross selling that Commerce eschewed.

Some customers have taken to websites Consumeraffairs.com and MyBanktracker.com to complain, using the word "hate" to describe their feelings about what TD has done to Commerce.

TD executives say then-and-now comparisons are unfair given that the environment in which Commerce once operated differed from the low-margin banking world of today.

"With margins compressed, you have to do something," said Linda Verba, TD's executive vice president of retail operations and service programs. Rather than being annoyed by TD's attempts to cross sell, Ms. Verba said, "customers want us to tell them what we have to offer."

TD ranked at the top of its class in customer satisfaction surveys compiled by J.D. Power & Associates, a West Lake Village, Calif., research firm, for four straight years in the 2000s. But TD hasn't held the honor since 2009.

Mr. Masrani acknowledged that TD made mistakes in its $8.5 billion purchase of Commerce, including a botched attempt to transfer data that prevented customers from checking their account information online for two days.

"When you bring banks together, there are cultural things that you have to overcome," Mr. Masrani said in January. A TD spokeswoman added Wednesday that the bank has retained the vast majority of customers it inherited from Commerce.

TD recently opened its 100th branch in New York City, making it the sixth-largest lender in the Big Apple by retail outlets and the fifth by a measure of retail deposits known as capped deposits. TD has plans to open 50 more branches in New York City and become No. 3 in capped deposits by 2015. Similar expansions are planned for parts of Florida and Boston.

Mr. Masrani said in January he isn't worried by the competition: "When they are closed, we'll be open."