CIBC to Add 70 Branches

The Toronto Star, Tara Perkins, 23 September 2006

New immigrants in the Greater Toronto Area will be a key target market for the Canadian Imperial Bank of Commerce as it opens or expands 70 branches across the country in the next five years.

"Although we have the second-largest number of branches in the Greater Toronto Area, it is still the area of greatest opportunity, given its large and growing proportion of new immigrants and economic wealth," said Sonia Baxendale, senior executive vice-president of CIBC Retail Markets.

CIBC already has about 220 branches in the Greater Toronto Area.

Forty of the 70 new or improved branches will be in Ontario, and all will be in high-growth, high-potential markets, Baxendale told analysts during a conference call yesterday.

The bank is also investing in Alberta, where high economic-growth rates are expected to continue; and in British Columbia, which has high immigration and a growing retiree population, Baxendale said.

Each of those provinces will have 11 new branches.

CIBC, Canada's fifth-biggest bank by assets, had 1,057 branches across Canada as of July 31, plus 235 President's Choice Financial pavilions. The bank has the second-largest branch network in Canada, with about 36,700 employees.

The bank plans to focus on two growth areas as it beefs up its network: the aging population and increasing immigration, according to yesterday's presentation.

Numerous big banks have placed an emphasis on new immigrants lately.

Last week, Royal Bank of Canada chief executive officer Gordon Nixon played host to dozens of journalists from the Chinese and South Asian media to outline the bank's strategy to attract business from new Canadians.

Last month, BMO Financial Group announced it was buying Bcpbank Canada, the Canadian arm of Portugal's Millenium Bcp, saying the chance to provide multicultural financial services is "one of the biggest business opportunities" out there.

Baxendale said telephone banking is one of CIBC's strengths, and the bank is adding additional language capabilities to its lines.

Other measures CIBC is taking to improve its core retail operations include adding small-business advisers to branches and investing in the bank's credit-card portfolio, which is the largest in the country.

The bank will increase credit-card limits for existing clients, boost credit-card advertising and provide incentives for customers to increase their spending, Baxendale said.

Over the past year, CIBC had been decreasing the amount of risk taken on after being walloped by a $2.8 billion charge to settle a class-action lawsuit related to the bank's dealings with Enron Corp. CIBC has been shifting away from unsecured loans toward secured lending.

The bank's risk posture has affected short-term revenue growth, CIBC chief executive Gerry McCaughey acknowledged. But he said that the change will position CIBC for stable long-term performance.

Revenues dropped to $2.8 billion in the most recent quarter, from $3.2 billion a year earlier.

McCaughey said CIBC is sticking to its goal of achieving at least 10 per cent earnings per share growth over the medium term. Dividends have room to grow, he added, because the bank is at the low end of a target payout range of 40 to 50 per cent of profit.

McCaughey also said CIBC would be willing to make further investments in the Caribbean if the right opportunity came up.

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Bloomberg, Doug Alexander, 22 September 2006

Canadian Imperial Bank of Commerce, the country's fifth-largest bank by assets, plans to open or expand 70 branches over the next five years to revive sluggish revenue growth at its consumer lending unit.

The new or relocated branches include 40 in Ontario and 11 each in Alberta and British Columbia, Sonia Baxendale, senior executive vice-president of CIBC Retail Markets, told analysts on a conference call today.

Toronto ``is still the area of greatest opportunity given its large and growing population of new immigrants and economic wealth,'' Baxendale said. ``Investment in branches in these high-growth markets will be a priority in the years ahead.''

Canadian Imperial, which says it has the second-largest branch network in the country, is trying to boost revenue from its consumer bank, which has been little changed at about C$2 billion ($1.8 billion) each quarter for at least two years.

The branch additions represent a pace of about 14 a year, compared with five that opened this year. Canadian Imperial had 1,057 branches in Canada as of July 31.

Profit from consumer banking and asset management has risen at an average rate of 12 percent a year over the past three years, said Chief Financial Officer Tom Woods. The bank has increased revenue in recent quarters from mortgages, while growth has slowed in small business lending and credit cards.

The bank plans to add more advisers for small businesses in its branches and introduce a new credit card this year, Baxendale said.

Chief Executive Officer Gerald McCaughey reiterated his target of "10 percent plus" growth in earnings per share and said there's room to increase dividends. The bank has targeted dividend payouts of between 40 percent and 50 percent of profit.

"We are at the very low end of the range that we've set," McCaughey said. ``When we're at the low end and the earnings profile has improved, there is opportunity for the distributions to increase.''

Canadian Imperial may also be willing to make more acquisitions in the Caribbean through FirstCaribbean International ``if the right opportunity came up,'' McCaughey said. Canadian Imperial agreed to take control of the bank by buying a stake from Barclays Plc for $1.08 billion. The transaction is expected to close by the end of the year.

FirstCaribbean Chief Executive Officer Charles Pink, who also spoke today at the conference, said he's looking to buy banks in the Caribbean in markets it doesn't serve if the price is right.

"We are very, very clear that we won't overpay," Pink said. "If we can't make the numbers work, we will not acquire."

Shares of Canadian Imperial fell 23 cents to C$84.10 at 4:10 p.m. on the Toronto Stock Exchange. The stock has gained 10 percent this year, the best performer among Canada's six biggest banks.

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Potential MFS Deal has Risks for Sun Life

Reuters, Lynne Olver, 20 September 2006

Sun Life Financial Inc.'s Boston-based MFS Investment Management unit could be worth $4 billion to $5 billion, analysts estimate, but some also see risks in merging or selling the U.S. money manager.

Toronto-based insurer Sun Life said earlier this week that it had hired advisers and was mulling alternatives for MFS, where profit margins are rising but remain sub-par for the industry.

Sun Life cautioned that a deal involving MFS was not a certainty.

Boston-based mutual fund company Putnam Investments may also be sold by its owner, insurance broker Marsh & McLennan Cos. Marsh said late on Tuesday that it had just started a review of Putnam.

Having another fund manager on the auction block may not help MFS, Genuity Capital analyst Mario Mendonca said on Wednesday.

"If you put your house up for sale on your street and your neighbor does too, that's unfortunate," Mendonca told Reuters.

But MFS's overall business appears to be on the upswing, despite net redemptions in its retail mutual funds, while Putnam continues to see large net redemptions, Mendonca said. He estimated the value of MFS at about C$5.4 billion ($4.8 billion).

MFS's sales are lackluster but margins are improving from low levels, Merrill Lynch analyst Andre-Philippe Hardy said in a research note on Tuesday.

"Selling now would give away potential improvements to a buyer," Hardy wrote. But a sale could give the stock a sizable boost, he concluded.

RBC Capital Markets analyst Jamie Keating estimated MFS could fetch roughly $5 billion, or 3 percent of the money manager's $168 billion in assets under management.

In a research note on Tuesday, Keating said there was "considerable" risk in getting the right deal done.

He pointed out that Sun Life's U.S. business model is aimed at high-net-worth individuals through its universal life, annuities and mutual fund products. There should be distribution efficiencies for the MFS and annuity businesses together, Keating said, so by giving up control of MFS -- by selling it outright or "vending" it into a larger entity -- Sun Life could limit or jeopardize its U.S. business associations.

Some of the companies that are speculated to be possible partners for MFS have seen heavy mutual fund redemptions, so their involvement could be problematic, Keating also said.

Net redemptions have plagued MFS's U.S. retail mutual fund business in the last three years, but that has been offset with inflows into institutional and managed fund products, National Bank Financial analyst Rob Wessel said in an August report.

Wessel estimated MFS is worth $4 billion to $5 billion in various scenarios.

Press reports have cited a laundry list of potential partners or bidders, mostly large, publicly traded U.S. money managers. Observers say vending MFS into a private company or maintaining the status quo are possibilities too.

Sun Life shares rose for a third straight day on Wednesday. They closed at C$46.19, up 36 Canadian cents or 0.8 percent, after hitting an intraday high of C$46.46, the highest level since mid-June.

Despite recent gains, Sun Life stock has underperformed its bigger Canadian insurance rival Manulife Financial so far this year with a 1.9 percent decline, versus a 6.3 percent gain for Manulife.

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Cdn Banks View US Deals as Too Pricey

Reuters, Lynne Olver, 20 September 2006

Executives of three Canadian bank subsidiaries in the United States are cautious about further U.S. acquisitions in light of current high prices, and one said on Wednesday that a decline in transaction pricing could be a year or two away.

Several of Canada's biggest banks are looking for growth in the United States to offset the smaller, mature banking market at home, where bank mergers are not allowed.

But Bill Ryan, chief executive of Portland, Maine-based TD Banknorth, a unit of Toronto-Dominion Bank, said the situation has worsened for buyers of U.S. banks, "so I think we'll go slow for a while."

Potential sellers are seeking premiums on top of acquisition premiums already built into their stock prices, making it difficult to acquire banks at costs that make long-term sense, Ryan said during a panel discussion at a Boston financial conference.

"I also think that the earnings estimates that are out there for most of American banks next year are much too high," because the U.S. yield curve has been inverted since June, Ryan said at the conference, organized by RBC Capital Markets.

Earlier this month, TD Banknorth said its third-quarter and fourth-quarter profits would be lower than analysts were forecasting at the time.

But Ryan, an industry veteran whose bank has made more than two dozen acquisitions, said the cycle will turn "fairly quickly" and he predicted aggressive activity when that occurs.

"I don't think that's until at least the end of next year, 2007, maybe 2008," Ryan added.

Chicago-based Harris Bankcorp Inc., a unit of Bank of Montreal, is "poised to acquire" and is actively looking for targets primarily in the U.S. Midwest. But the acquisition premiums being demanded today are "pretty significant," Vice-Chairman Chuck Tonge said at the conference.

In the absence of acceptable deals, Harris will continue to expand branches in the Chicago area, Tonge said.

Scott Custer, chief executive of Royal Bank of Canada's RBC Centura Banks Inc. unit in Raleigh, North Carolina, said macroeconomic and industry dynamics should bring "rationalization" to transaction pricing.

A stricter regulatory environment has increased compliance costs for smaller banks, Custer noted, and their margins have been compressed as customers shifted deposit money from low-cost accounts to higher-cost products.

"I think more of these companies will come to the realization that it's a tough road to slug it out on your own," Custer said.

Meantime, high prices will not stop all deal-making, the executives said.

RBC Centura is in the midst of closing its purchase of Atlanta-based Flag Financial Corp., a transaction worth about $456 million, or 20 times Flag's expected 2006 net income.

Since Flag fits in between RBC Centura's existing retail network and commercial business, "we were willing to pay a little more because of the strategic value and the fit that they brought," Custer said.

At Harris, "we're not going to be dogmatic and pass everything, but it's got to make sense," Tonge said.

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Bloomberg, Sean B. Pasternak and Doug Alexander

Toronto-Dominion Bank, Royal Bank of Canada and Bank of Montreal, three of Canada's biggest banks, say high prices for U.S. lenders are making it harder to make acquisitions.

William Ryan, the chief executive officer of Toronto- Dominion's TD Banknorth unit, said that the opportunities for acquisitions have become "worse, not better." The Portland, Maine-based bank has acquired 27 banks in the last 12 or 13 years, he said.

"I think it's just going to be difficult right now to acquire banks at prices that make a lot of sense for the long term," Ryan said today at an investor conference in Boston sponsored by RBC Capital Markets. Toronto-Dominion is Canada's second-biggest bank by assets.

Lenders such as Toronto-Dominion and Royal Bank, blocked by the Canadian government from merging with each other, have looked to the U.S. for growth. Ryan said that some U.S. banks are trading at 17 times earnings, which he considers expensive with projected earnings growth of about 10 percent next year.

Bank of Montreal, the fourth-biggest bank "is accumulating capital significantly up in Canada and we want to deploy that capital," said Chuck Tonge, vice chairman of the Chicago-based Harris Bancorp unit. He added that "I think the acquisition premiums that are built into most of the candidates today are pretty significant."

Scott Custer, chief executive officer of Royal Bank's Raleigh, North Carolina-based RBC Centura, said that ``there'll be more rationalization in the pricing of these kinds of transactions,'' when banks realize how slow earnings growth will be.

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Bloomberg, Sean B. Pasternak

The opportunities for making bank acquisitions in the U.S. have become "worse, not better," TD Banknorth Inc. Chief Executive Officer William Ryan said.

"It's hard for me to believe that banks are going to be sold on 10 percent earnings growth when we've had an inverted yield curve since June," Ryan said, speaking today at an investor conference in Boston sponsored by RBC Capital Markets.

TD Banknorth is the U.S. consumer banking arm of Toronto- Dominion Bank, Canada's second-biggest bank by assets. The Portland, Maine-based bank has acquired 27 banks in the last 12 or 13 years, Ryan said.

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UBS Bank Seeks Bigger Share of Wealthy Pie

The Toronto Star, Tara Perkins, 20 September 2006

Not content with just skimming cream off the top, UBS Bank (Canada) is now hoping to steal a hefty portion of this country's wealth-management pie from the big banks.

The Canadian arm of Swiss-based UBS plans to take a bigger bite out of the high-net-worth market, having swiped a decent piece of the ultra-high-net-worth market. But a key hurdle as it goes head-to-head with the domestic banks is overcoming a lack of brand recognition.

The UBS name has made inroads among Canada's ultra-high-net-worth individuals — the roughly 2,500 Canadian families that have $50 million or more — UBS Bank (Canada) chief executive Grant Rasmussen said in an interview from Switzerland, where he was at a corporate retreat.

"What we're finding now, the higher the end of the market that you deal in, the more the brand is recognized," he said. "And then, where we're really trying to grow our brand is more in what I'll call just the traditional high-net-worth market."

That's the 700,000 or so Canadians who have between $1 million and $50 million.

UBS has been offering private banking in Canada since 1951, but originally focused on investment banking and corporate banking. It began emphasizing wealth management in the late 1990s.

Last year, Euromoney magazine ranked UBS Bank (Canada) the best private bank for the ultra-high-net-worth, which the magazine defines as those with $30 million or more. Managing money for people in that market is about more than just investment accounts, Rasmussen said.

UBS has experts in collectables and alternative investments such as art banking (buying or selling private art collections), aircraft financing and wine banking.

Wine banking caters to families or individuals who want to buy or sell a vineyard: "If I was going to buy a vineyard, and I was looking at Australia versus the Mendoza region in Argentina versus the Niagara region in Canada, how do they compare and what do I pay?" explains Rasmussen.

"To have a separate group for managing money for people with $50 million plus doesn't exist in the banks," he said.

Rasmussen declined to identify the number of clients UBS has, saying only: "it's far and away the fastest growing part of our business." But he acknowledges that UBS doesn't have the biggest piece of the pie. Even in the ultra-high-net-worth market, brand awareness is an issue.

"We're ranked Number 1 in terms of what I'll call expertise, but we're still dealing with the awareness issue of trying to grow our brand in Canada," he said. "A lot of those folks are still used to dealing with what I'll call a retail bank, and are just starting to find these alternatives."

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Scotiabank Mexico Loan Growth May Quicken in 2007

Bloomberg, Adriana Arai, 19 September 2006

Bank of Nova Scotia, Canada's third-largest bank, may speed up lending growth in Mexico next year because of growing demand for mortgages, said Anatol von Hahn, chief executive of the bank's Mexican unit.

Von Hahn said lending growth will be above 20 percent this year and next. He declined to provide more specifics.

"We'll grow next year at the same pace as this year or even slightly more,'' von Hahn said at a press conference in Mexico City today.

Demand for credit will keep rising next year even as Mexico's economy, the second biggest in Latin America, slows next year, he said. Scotiabank said today it will begin offering Mexican mortgages with no down payment, targeting young couples that have full-time jobs, yet haven't managed to save much.

About 9.9 million Mexicans are between 20 and 24 while half the 103 million population is under 25, Scotiabank said.

Economic growth in Mexico will slow to about 3.5 percent in 2007 from about 4.5 percent this year as the expansion in the U.S., which buys about 80 percent of Mexican exports, will ease, Finance Minister Francisco Gil Diaz said in an interview today.

Scotiabank's new mortgage product, the first with no down payment in Mexico, will be covered by insurance provided by Genworth Financial Inc. Scotiabank expects to provide $300 million of mortgage with no down payment during the next 12 months, said Ricardo Garcia Conde, head of mortgages at Scotiabank.

Mexico's congress passed legislation earlier this year that allows for mortgage insurance for the first time.

Scotiabank, which runs Mexico's sixth-biggest bank, expects the new mortgage product will help it keep its market share of about 20 percent in a market that has been growing at annual rates in excess of 80 percent for almost a year, Garcia Conde said. Mortgage lending grew 82 percent in July from a year earlier to 178 billion pesos ($16.2 billion), according to the Mexican central bank.

Grupo Financiero Scotiabank Inverlat SA, as the Mexican unit is called, is the nation's second-biggest mortgage lender after Grupo Financiero Banorte SA.

Scotiabank's 20-year mortgage rates range from 10.25 percent to 12 percent. The bank says those rates are the lowest in the Mexican market. The mortgage insurance costs 0.1 percent of the value of the loan monthly.

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(Reuters) Scotiabank's Mexico unit, the country's sixth-largest bank, expects to speed up growth in its credit portfolio, bolstered by strong demand for business and business loans.

Scotiabank executives said on Tuesday they now believe its credit portfolio will grow faster than the 20 percent they had predicted for this year and next.

They said mortgage loans were leading the way with growth of more than 40 percent.

Housing loans are a small but rapidly growing market in Mexico and Scotiabank has about 20 percent of the market among commercial banks by offering new products like loans with no down-payment needed.

The bank is the local arm of Canada's Bank of Nova Scotia and it holds around 7 per cent of bank credit in Mexico. The market is dominated by the local units of Spain's BBVA and Citigroup of the United States.

Mexico's banking association has twice raised its credit growth estimates for this year, to 30 percent from 20 percent initially.

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TD Banknorth No Fee ATM Card

CNNMoney, Shaheen Pasha, 19 September 2006

If you slash fees, they will come.

Bank deposits, that is. And that's a philosophy increasingly gripping the banking industry as more and more banks look to attract depositors by offering free checking accounts and no-fee ATM service to consumers.

Given the increasingly competitive landscape - with high-yield online bank accounts stealing market share - retail banks have to fight tooth-and-nail to draw traffic to their stores. And that means innovative, consumer-friendly products.

But even a good strategy has some pitfalls, at least in the short term.

"To some degree, there is a revenue hit from these kind of initiatives," said Madhavi Mantha, senior analyst at independent research and consulting firm Celent LLC. "But the whole goal, especially from free checking, is to gain deposit customers and that is financially more important than any hit they have from waiving fees."

And to that end, some banks are already seeing success.

Washington Mutual, for instance, recently touted its free checking initiatives at its investor day in Seattle. The company's free-checking program, which also eliminates fees for using out-of-network ATMs and gives customers 3 cents back for debit card signature purchases, was launched in March and has already resulted in 400,000 new checking accounts, executives said.

WaMu is hoping to open 1.2 million new checking accounts by the end of the year, said James Corcoran, president of WaMu's retail banking at the event.

Near-term challenges

TD Banknorth, however, is facing some challenges in the near term. The company launched its "Bank Freely" campaign in June, which eliminated fees for out-of-network ATM usage and refunds consumers any fees that other banks may charge them for using a TD Banknorth cards.

For consumers, that's about $4 in savings each time they use an out-of-network ATM but can add up to some hefty losses in income for the company.

"It's not an insignificant cost to the company," said Thomas Dyck, executive vice president of corporate marketing and small business at TD Banknorth, although he didn't provide exact figures.

But he added that TD Banknorth is willing to take the short-term hit to profitability because the initiative has "dramatically increased traffic in our branches and we've opened new accounts."

Still TD Banknorth recently warned that its third-quarter earnings would fall well below analysts' expectations, due in part to the fiercely competitive and increasingly expensive deposit environment. The bank also warned that fee income, which has helped banks offset some of the earnings lost to the higher interest rates they must pay on deposits, are also falling.

Fee income is made up collectively of items such as investments, insurance, account fees and sales on loans. ATM fees generally make up a relatively small portion of total fee income, analysts said.

But service charges on deposit accounts - such as fees related to maintenance of bank deposit accounts and ATM fees - have steadily grown over the last year, according to statistics from the FDIC.

In the first half of the year, service charges on deposit accounts climbed to $17.6 billion from $16.4 billion in the first half of 2005. And those fees accounted for roughly 19 percent of total non-interest income for the banking industry - up from about 15 percent in in the first half of 2005, according to the FDIC.

TD Banknorth's Dyck said the company couldn't break out how large a part of the company's income was derived from the waived ATM fees.

"It's certainly eating somewhat into income, but our entire position is around acquiring new customers," he added. "We're taking a longer term view about the whole issue."

Patience is a virtue

It is a strategy that will require some patience for most players, said Gerard Cassidy, managing director of equity research at RBC Capital

Cassidy said banks are counting on the likelihood that when customers open a deposit account, they will be also be inclined to develop other banking relationships in the future that will prove more profitable.

"Customers that have multiple products with banks are less likely to leave those banks," he said. "But if customers only use the bank for those sale-priced products and don't purchase other products" that could impact profitability down the road.

And that's why banks are going to have to be strategic if they plan to cut fees in order to draw consumers.

"It's not appropriate for every company," said Jackie Reeves, managing director at Ryan Beck. "The industry is extremely revenue challenged and they are looking for specific niche products to add on customers."

Commerce Bancorp launched its no-fee ATM as it prepared to expand into Washington and Florida.

For TD Banknorth, which recently purchased Hudson United Bancorp, cutting fees was also a strategic way to grow in a new market, Reeves said.

And PNC Financial's strategy was to encourage its current account-holders to consolidate multiple accounts with one PNC checking account by offering no-fee ATM services to those depositors with a minimum of $2,500 in their account.

"In the grand scheme of things, is this the right strategy for banks?" Reeves said. "That remains to be seen."

None of the analysts interviewed for this story own shares of the companies mentioned.

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Life Insurance Cos' Excess Capital

Scotia Capital, 19 September 2006

• Great-West Lifeco's business is the least capital intensive of the group and IAG's is the most, with Manulife and Sun Life in the middle. With little in the way of share buybacks we expect Great-West Lifeco to rapidly rebuild excess capital (currently $500 million) and continue to make tuck-in acquisitions in Europe and/or the United States. We expect IAG to rebuild its excess capital ($80 million) back to pre-Clarington acquisition levels and then look to make an acquisition in the U.S. We expect Manulife to gradually chip away at its excess capital position ($3.3 billion) through increased buyback levels and payout ratio increases. For Sun Life, we expect the company will still look for U.S. acquisitions for its sub-scale U.S. insurance assets as well as maintaining a modest increase in share buyback and dividends. As such, we expect its excess capital position (currently $1.5 billion) to only arginally increase over the next two years.

• As far as options with MFS, which accounts for 9% of Sun Life's bottom line, we find it difficult to get much more than $0.05-$0.10 in EPS accretion.

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Sun Life Hires Investment Bankers for MFS Unit

Bloomberg, Sean B. Pasternak, 19 September 2006

Sun Life Financial Inc. may pay shareholders a special dividend if Canada's second-largest insurer sells its MFS Investment Management unit, RBC Capital Markets analyst Jamie Keating said.

The Toronto-based insurer said yesterday it hired investment bankers to consider a possible sale of MFS, its Boston-based money management unit. The business is worth about $5 billion, or $7 a share, Keating said in a research note today.

The MFS unit contributes 10 percent to Sun Life's net income and about 1 percent to return on equity, a measurement of profitability, according to the report. A special dividend ``would be desirable in order not to depress'' return on equity, Keating said.

Michel Leduc, a Sun Life spokesman, declined to comment. Keating didn't return a phone call seeking comment.

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The Boston Globe, Steven Syre, 19 September 2006

To many people inside and outside MFS Investment Management, the question about an ownership change at one of the city's biggest and oldest money-management firms became when, not if. Now the answer seems to be sooner rather than later.

For about a week, the rumor mill has been working overtime on the prospects for a sale of MFS and about the potential buyers. Sun Life Financial Inc. , the Canadian insurance giant that owns MFS, confirmed yesterday that it had hired investment bankers to explore a transaction.

That doesn't guarantee anything will happen, but MFS is in play, and Sun Life is considered a serious seller. Speculation about buyers and prices is all over the map. No fewer than six potential buyers or merger partners have been rumored in print over the past several days.

Sun Life's motivation is clear. MFS, which manages $168 billion, makes lots of money and runs at an operating profit margin that would be considered top-shelf in many industries. But margins at MFS are below average in its industry, and Sun Life believes the business needs greater scale to improve.

Getting bigger means buying, selling, or forging some sort of merger of equals. Analysts who follow Sun Life say the Canadian parent doesn't want to make a big acquisition that will add lots of goodwill to its balance sheet. A sale for cash in return would generate a huge tax bill.

Analysts believe Sun Life wants to merge MFS with a larger money manager, and come away as a stockholder with a substantial minority interest in the much bigger combined investment company.

So who would be the ideal acquirer of MFS, under those circumstances? It's hard to imagine a better fit than Franklin Resources Inc.

Franklin, a public company, manages $505 billion in mutual funds and other investments for clients around the world. A sale of MFS in return for Franklin shares would leave Sun Life with a meaningful minority ownership interest in a well-regarded company and a very liquid asset.

Franklin, based in San Mateo, Calif., is best known for its own fixed-income investment products. But the company also has a track record of buying other well-known firms, integrating the businesses successfully, and operating funds under a variety of subsidiary brand names.

In the 1990s, Franklin branched out into international investing by purchasing the company that owned the famed Templeton Funds. Later, it acquired the company that operated Michael Price's value-oriented Mutual Series Fund.

Those deals and other acquisitions helped Franklin diversify its business over years. But the company remains relatively weak when it comes to growth-stock investing. MFS would fill that hole in a big way.

Growth-stock investing has been out of favor six years, a period that favored value-oriented investment products like the American Funds and funds sold by Franklin. This may be an opportunity to buy a big growth-stock manager at the bottom of the market.

So there are lots of reasons why a sale of MFS to Franklin would make sense. But, of course, there are complications.

At Franklin, the founding Johnson family still runs the show. (Yes, there is another big investment company dominated by a family named Johnson.) It has shown little interest in issuing lots of stock or diluting the combined family interest of the company, which approaches 40 percent.

Another question revolves around price. If Sun Life's bankers subjected MFS to a bidding war that drove up the price, Franklin might walk away. It has tons of cash, and that means it has plenty of other options.

But MFS and Franklin suit each other best. On paper, at least.

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Bloomberg, Sean B. Pasternak, 18 September 2006

Sun Life Financial Inc., Canada's second-largest insurer, hired investment bankers to consider a possible sale of its U.S. money-management unit, which has had $16 billion withdrawn from its funds over four years.

Sun Life didn't name the investment bank, which will advise the insurer on ``strategic alternatives'' for MFS Investment Management. Toronto-based Sun Life said in a statement today that there is no assurance of a transaction.

The Globe and Mail newspaper reported on Sept. 16 that Sun Life is in talks with at least four companies for a possible sale or partnership for MFS Investment, which analysts valued at about $4 billion. The newspaper said Sun Life hired Morgan Stanley for the review.

MFS has lost $3.7 billion in mutual-fund shareholder withdrawals this year through July 31, adding to its outflows since 2002, according to Boston consulting firm Financial Research Corp. Its net outflows are the fourth-highest in the fund industry in 2006.

``When you think of Sun Life's alternatives, clearly combining it with someone else is the most advantageous,'' said Robert Wessel, an analyst at National Bank Financial in Toronto. ``There are financial benefits and there are strategic benefits, such as greater scale and better distribution.''

Wessel, who wrote a 52-page report to investors last month discussing Sun Life's options for MFS, said the unit would be valued at $4 billion if taken public, or $5 billion if sold to a rival.

Investors began withdrawing money because of poor growth- fund performance during the 2000-2002 bear market and continued after the company's involvement in a mutual-fund trading scandal and undisclosed sales payments to brokers.

MFS, which manages the oldest mutual fund in the U.S., agreed in 2004 to pay $351 million in penalties for allowing some investors to make improper trades in its funds. The settlement was made with the U.S. Securities and Exchange Commission, New York Attorney General Eliot Spitzer and New Hampshire securities officials.

Shares of Sun Life rose 69 cents, or 1.6 percent, to C$45.29 at 4:10 p.m. trading on the Toronto Stock Exchange, and have fallen 3 percent this year. That trails the 5.5 percent gain in the Standard & Poor's/TSX Financials Index.

MFS's profit was $92 million for the first six months of the year, up from $71 million, a year ago, while revenue at the Boston-based firm rose 8.7 percent to $722 million.

``The company values MFS as a strategic asset and remains committed to growing the business organically while assessing strategic alternatives,'' Sun Life said in the statement. ``MFS is gaining flows on the institutional side both domestically and internationally and has delivered significant margin improvement over the past year.''

Sun Life Chief Executive Officer Donald Stewart wants to hold a smaller stake in a ``much larger firm,'' according to the Globe and Mail report, which cited unidentified bankers. Potential partners include Nuveen Investments Inc., Franklin Resources Inc., Morgan Staney's money-management arm and Putnam Investments, the newspaper said.

Franklin spokeswoman Lisa Gallegos declined to comment, as did John Reilly, a spokesman for MFS, Michel Leduc at Sun Life and Chris Allen, a spokesman for Nuveen Investments. Morgan Stanley spokeswoman Marie Ali declined to comment, as did Putnam spokeswoman Sinead Martin.

The probability that Sun Life reaches a deal for MFS within the next year is 40 percent, TD Newcrest analyst Steve Cawley wrote today in a note to investors.

``While speculation has certainly heated up, there is no guarantee that management has overcome its apparent reluctance to embark upon a company-changing path,'' said Cawley, who rates Sun Life ``hold.''

Cawley said that he's concerned about a ``steady trickle'' of executive departures at Sun Life at a time when the firm considers its options for MFS. The company named Ronald Friesen as chief financial officer of its U.S. operations today, replacing Gary Corsi, who last week agreed to join Protective Live Corp.

In addition, James Prieur, who was Sun Life's president, agreed in August to become chief executive officer of U.S. insurer Conseco Inc. Paul Derksen, chief financial officer of the overall firm, will retire next year and be replaced by Genworth Financial Inc.'s Richard McKenney.

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Boston Business Journal, 18 September 2006

Wall Street investment bank Morgan Stanley has been hired to find a buyer for MFS Investment Management, the $168 billion mutual fund division of Canada's Sun Life Financial. The move was announced three days after the Boston Business Journal first reported that T. Rowe Price and Ameriprise Financial were in a bidding war to acquire MFS for between $6 billion and $8 billion.

The Morgan Stanley news comes just four months after Morgan Stanley authored a research report outlining Sun Life's strategic options, relative to Boston-based MFS. The report, written by analyst Ken Zerbe and published May 25, concluded that a sale was in the company's best interest.

"MFS does not have significant scale to generate industry-average margins," Zerbe wrote, noting that Sun Life would likely see a 15 cent earnings-per-share boost after an MFS sale. He said MFS' profit margin is roughly 9 percentage points below the industry's average of around 35 percent of revenue.

"The most likely option, in our view, is that the management will sell a majority ownership position to another asset management firm," Zerbe wrote.

Zerbe said Sun Life would likely retain a 20 percent to 30 percent ownership stake in the newly merged entity. A Morgan Stanley spokeswoman declined to comment when asked about a potential deal last week.

Sun Life responded to the heightened media speculation Monday. "Sun Life Financial continually reviews the performance of all of its businesses to deliver and grow shareholder value. The company values MFS as a strategic asset and remains committed to growing the business organically while assessing strategic alternatives. The company has retained investment bankers to advise on strategic alternatives. However, there is no assurance that a transaction will result," the company said in a prepared statement.

Last Tuesday, Sun Life spokesman Michel Leduc told the BBJ that the company welcomes "any options to grow shareholder value."

In a May interview with the BBJ, MFS CEO Rob Manning said he planned to grow the company both organically and via targeted acquisitions of smaller money-management shops. "We will be a consolidator," he said at the time.

Manning was hired two years ago at the age of 40 to take the reins at MFS, which was close to finalizing a $350 million settlement with regulators stemming from improper trading within its mutual funds. Its senior leadership faced suspension from the fund industry. The company's investment record, which had become largely dependent on growth stocks, was taking a beating at the time. Manning previously managed MFS' fixed-income division.

Meanwhile, The Globe and Mail, a national paper based in Canada, reported Friday evening that four potential bidders -- including Putnam Investments in Boston, Morgan Stanley's money-management arm, Nuveen Investments Inc. in Illinois and Franklin Resources Inc. in California -- are also in the running for MFS. The Globe and Mail said a potential deal would likely garner $4 billion for Sun Life.

A spokeswoman for Marsh & McLennan, Putnam's parent, said she was unaware of any negotiations and declined to comment further.

Other financial services firms have dumped their mutual fund divisions in recent months. In February, Merrill Lynch & Co. agreed to sell its 154 mutual funds to New York money manager BlackRock Inc. Last year, Citigroup Inc. swapped its mutual fund operations in exchange for the brokerage arm of Legg Mason Inc.

Having earned a strong reputation for product innovation and research since its founding in 1924, MFS employed 2,400 people, including 2,300 in Massachusetts, as of Dec. 31. Its Massachusetts Investors Trust mutual fund is recognized as the first mutual fund ever invented.

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TD Newcrest, 18 September 2006

Event

According to an article in the Globe and Mail, Sun Life Financial has hired Morgan Stanley to “screen merger candidates for MFS,” its U.S.-based asset manager.

Impact

Slight Positive. The announcement that it has hired Morgan Stanley, which has yet to be confirmed by Sun Life, increases the likelihood that a value enhancing deal will get done within the next year, in our view. As such, we have incorporated a probability-weighted valuation scenario in our target price for SLF, which we are raising to $48 from $47. We had previously calculated $2-$3 upside from a spinout of MFS into a larger entity, but did not reflect this amount into our target price. We are now incorporating a 40% probability that a deal gets done within the next year. However, with some of the upside already reflected in SLF’s target price (i.e. it rose over 5% in August as MFS speculation heated up), ongoing executive departures and our concern over operational issues that have led to lackluster H1/06 results, we continue to rate Sun Life a Hold.

Details

What kind of transaction is SLF entertaining?

In past discussions, management has indicated that it prefers to vend MFS into a larger entity, retaining 20-50% ownership, however, did not rule out an outright sale of the company (i.e. through an IPO). In our valuation upside calculations, we assume Sun Life vends MFS into a larger entity.

How do we get to $2-$3 upside?

There are two main drivers to our upside potential calculation, including: (1) improving pre-tax margins to 35% following a transaction from 26% Sun Life reported in Q2/06; and (2) partially removing the valuation discount we currently apply to MFS’ earnings. With regards to the latter point, we note that U.S. asset manager multiples have been increasing the past few weeks, from a low of ~21.0 times trailing earnings in July and August to 23 times trailing earnings today, which leads us to believe that upside could be at the higher end of the range. For more detail on our upside calculation, please read our July 25, 2006 report entitled Wealth Management: These Are Not Simply ‘Lifecos’.

Why only 40% probability?

While it appears increasingly probable that a deal is consummated within the next twelve months, we have chosen to reflect only 40% of the potential upside in our target price. First, while speculation has certainly heated up, there is no guarantee that management has overcome its apparent reluctance to embark upon a company-changing path that would be necessary following a transaction involving MFS. Second, timing of a potential transaction is uncertain. Third, while potential candidates for a tie-up are available, there is no guarantee that the partner eventually selected meets strategic/cultural criteria (described in the next section). We believe the lower probability incorporates the risk that the partner selected is not ideally suited to deliver strategic and financial benefits to SLF.

What do we think of potential MFS partners mentioned in the Globe and Mail article?

We believe the most logical partner for MFS should have: (a) strong management; (b) a strong growth-fund lineup; and (c) sufficient value to maintain Sun Life’s potential ownership in a combined entity to between 20-50%. We also note that cultural differences are important to address in the combination of money managers and that MFS’ “research intensive” culture may stand in contrast to a firm with more bottom line focus; we believe these cultural considerations have prevented an MFS transaction in the past. In Exhibit 1, we profile each of the four companies mentioned in the Globe article.

In our view, Franklin Resources (manager of Franklin Templeton funds) is the only company identified that could meet most of Sun Life’s criteria. Since we don’t follow this company, it is difficult for us to judge management, but the company has had solid operating margins and positive net fund flows over the past four quarters. We also believe the company has a solid growth-fund platform, however, we believe Sun Life would have to accept less than 20% ownership of a combined entity. Nuveen Investments is a possibility, however we believe Sun Life could own more than 50% of the new firm and we believe Nuveen’s growth-fund lineup is limited. In our view, Putnam Investments seems unlikely given struggles with fund flows and relatively small size. We are less familiar with Morgan Stanley’s Asset Management operations and have no major opinions either way to provide support or argue against a combination with MFS.

Are we concerned about recent executive departures?

Yes. A steady trickle of Sun Life executives have left the company ever since Paul Derksen announced his retirement during the Q1/06 conference call. Since then, former Chief Operating Officer Jim Prieur and former Chief Financial Officer of the U.S. Division, Jim Corsi, have left for positions with rival U.S. insurers. We also understand (albeit unconfirmed by the company) that Vice-President Douglas Brooks, who is highly regarded for risk management experience, has also left Sun Life in the last week. The spate of executive departures gives us concern regarding the future direction of the organization, especially at a time when key decisions regarding MFS are being made.

Justification of Target Price

Our $48 (up from $47) target price equates to 12.5x (unchanged) our 2007E EPS plus 40% probability of MFS being vended into a larger entity over the next year, which could add roughly $2-$3 per share. We believe the following Sun Life positive investment attributes remain: (1) long-term value of SLF ownership in MFS and other wealth management operations; (2) leverage in the deployment of excess capital; (3) willingness to buyback stock and/or increase the dividend; (4) traditionally strong and stable Canadian operations; and (5) long term earnings growth potential of Asian operations. On the other hand, operational problems over the past two quarters have led us to apply a lower valuation multiple to Sun Life’s earnings than we do for its main rivals, Manulife and Great-West Lifeco.

Key Risks to Target Price

(1) Further deterioration of the USD; (2) failure of the US division to improve annuity division sales/earnings; (3) integration problems with CMG Asia; (4) sudden spikes in interest rates; (5) significant downturns in equity markets; (6) inability to effectively lower its corporate tax rate; (7) poor mortality or morbidity claims experience; (8) regulatory investigations into industry sales practices; (9) ineffective or unattractive MFS related transaction.

Investment Conclusion

We expect investors to react positively to speculation that Sun Life has hired a strategic advisor to monetize its valuable MFS asset. Due to ongoing operational concerns in Sun Life’s insurance operations and continued departures from its executive team, we are cautious in our evaluation of this company. While a transaction involving MFS could provide a short-term “pop” to the stock, we are less confident in the company’s longterm prospects. We rate Sun Life a Hold.

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RBC CM Cuts TD Banknorth Estimates

RBC Capital Markets, 18 September 2006

Event

• Reduced 2006E/2007E cash EPS to $2.18 and $2.34 from $2.24 and $2.46 per share.

Investment Opinion

• Margin Pressure: Rising deposit and borrowing costs, a shift in consumer sentiment toward higher yielding CDs, and extremely competitive pricing for high quality commercial business and commercial real estate loans should apply more significant than previously expected pressure to BNK's margin in the second half of 2006.

• Increased Marketing Costs: BNK has ramped up marketing in the Mid-Atlantic region in an effort to create better name brand recognition in the aftermath of its recently closed acquisition of Hudson United. Costs associated with this effort are expected to remain elevated through the end of this year.

• Loan Growth Trends: After posting robust growth in 2Q06, we now expect 3Q06 loan growth trends to moderate somewhat due to extremely competitive pricing for high quality commercial lending opportunities. Mid-to-upper single-digit annualized growth is now expected to persist through the end of this year.

• Fee-Based Revenue Growth Also Under Competitive Pressure: Slowing deposit and loan growth is now expected to result in slower than previously expected deposit and loan fee revenue in the second half of this year.

• Adjustments: In addition to lowering 2006 and 2007 EPS estimates, we also lowered our 12-month price target to $28 from $30 to reflect reduced earnings expectations.

• Thoughts On The Stock: The operating environment is likely to remain challenging for BNK through the end of this year. We are now forecasting a 12% contraction in cash EPS in 2006 and a moderate positive EPS growth rate of 7% in 2007. At 12.3x our current 2007 cash EPS estimate, we view the stock as fairly to fully valued, and we view the company as an ongoing acquirer. Therefore, we would continue to avoid the stock.

• Rating: The stock trades at a slight premium to our revised fundamental price target of $28 per share, justifying our Sector Perform rating with Average risk, in our opinion.

Valuation

TD Banknorth's stock currently trades at 14.6x 2007E GAAP EPS, 12.3x 2007E cash EPS, 0.8x stated book value and 3.9x tangible book value, compared with our mid-size commercial bank peer group averages of 14.6x (GAAP multiple - we don't have cash estimates for the peer group), 2.1x and 3.5x, respectively. We view the company as capable of delivering 10-12% EPS growth over the long-run, which justifies a comparable target multiple in our opinion. Our price target of $28 (previously $30) implies a multiple of 12x our 2007 cash EPS estimate (previously 12x our 2007 cash EPS estimate). We remain enthusiastic about the company's long-term fundamental prospects, and believe TD could positively influence the stock from time to time through open market purchases. But, we also recognize that fundamentals are likely to remain under pressure through the end of this year, we continue to point out that the remaining 40-45% of BNK will not likely be sold to Toronto-Dominion for as long as 3-5 years, and view the company as a likely active acquirer into the foreseeable future. Therefore, we expect the stock to remain range-bound over the near-term.

Price Target Impediment

A significant deterioration in the Northeast economy, a spike in short-term interest rates, a continued and sustained decline in long-term interest rates or any significant difficulty integrating acquisitions could hamper the company's ability to achieve our earnings estimates, which could force us to revisit our current price target. Conversely, stronger than expected balance sheet growth or a steeper than expected yield curve could enable the company to beat our estimates, potentially rendering our current price target too low.

Company Description

TD Banknorth, Inc., headquartered in Portland, Maine, is one of the country's 20 largest commercial banking companies with 600 branches, $40 billion in assets and $27 billion in total deposits. The company operates in Maine, New Hampshire, Vermont, Massachusetts, Connecticut, New Jersey, New York and Pennsylvania. TD Banknorth is a majority-owned subsidiary of TD Bank Financial Group, which is headquartered in Toronto.

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Malaysia Utama "Not Aware" of Scotiabank Bid for RHB

Kuala Lumpur -(Dow Jones)- Malaysia's Utama Banking Group Bhd. Monday said it is unaware of any plan by Canada's Bank of Nova Scotia to bid for financial services group Rashid Hussain Bhd.

"Utama Banking wishes to inform that it is not aware of Canada's Bank of Nova Scotia's plans to bid for financial group Rashid Hussain, or its plan to offer MYR2.30 and MYR2.50 a share for Utama's stake in RHB," the investment holding company said in a statement to the stock exchange.

RHB shares ended up 4.8% Monday at MYR1.30.

Utama, which is controlled by the family of Sarawak state Chief Minister Abdul Taib Mahmud, was responding to a query from the stock exchange on a Business Times report that Bank of Nova Scotia plans to make a bid for RHB.

The report came following Utama's rejection of an offer from state-owned Employees Provident Fund to buy its 32.8% stake in RHB on the grounds that the price was significantly below valuation.

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2006-2007 On-line Broker Rankings by The Globe & Mail

The Globe and Mail, Rob Carrick, 16 September 2006

There's a simmering price war in the on-line brokerage business, but only some firms have bothered to show up.

To find out which ones, just look to the top names in the 2006-07 Globe and Mail ranking of on-line brokers. In first place is Qtrade Investor, an independent Vancouver-based operation that is, so far, the only broker to respond to the sub-$20 minimum stock-trading commissions that E*Trade Canada introduced earlier this year.

In second place is E*Trade, which polished its reputation as the price leader this week by announcing that clients with at least $50,000 in assets will pay just $9.99 to trade stocks as of Oct. 3. In third place is Credential Direct, which has among the lowest commissions around for people who place large-value trades.

Costs are the most important factor in this eighth edition of the Globe's broker ranking, and the reason is that they're uppermost in the mind of do-it-yourself investors. In a survey conducted recently on the Globeinvestor.com website, a little more than one in three of the 1,641 participants ranked cheap commissions and fees as the top attribute of an on-line broker. No other attribute was even close.

There's more to a good on-line broker than low commissions, of course. Accordingly, this ranking emphasizes these five other factors that participants in our survey thought were important:

1. Tools for researching stocks and mutual funds, and for financial planning and portfolio building.

2. Trading, a category that includes the variety of stock orders you can place on-line and also considers bonds and mutual funds.

3. Investment selection, which refers to the availability of a wide variety of bonds and guaranteed investment certificates on-line, and guided portfolios, which are blends of mutual funds and exchange-traded funds that are calibrated for varying investment objectives.

4. Information to show how your investments are doing, with personalized rates of return and real-time account updating being the gold standard.

5. Website utility, which includes such things as the kinds of account maintenance matters you can attend to on-line and the availability of on-line statements and trade confirmations.

Finally, we gave some weight to the answers our survey participants gave to a question that asked them how happy they were with the service they received from their broker. As usual, this year's brokerage rating looks strictly at on-line services, and not those offered through live representatives. It also focuses strictly on those on-line brokers that target a mainstream audience as opposed to aggressive stock traders.

• No. 1 / Qtrade Investor / qtrade.ca / Parent: Privately held

Lowdown: If you've never heard of Qtrade, it's probably because it has quietly built its business by forging relationships with credit unions and other financial players. Qtrade is no trendsetter, but it's a shrewd imitator. The net result is a broker that has risen to the top by adopting the best practices of its competitors. Examples: Qtrade has just cut its minimum commission for market orders (where you pay or receive the going market rate) to $19.95, nominally undercutting E*Trade's $19.99 fee for all types of trades, and it has partly emulated BMO InvestorLine's excellent reporting of client investment returns.

More good stuff: Qtrade has eliminated all mutual fund commissions and its annual administration fee for small registered retirement savings plans is low at $40.

Bottom Line: Take that, bank-owned brokers.

Report Card
Fees and commissions 21/25
Tools and research 12/20
Trading 16/20
Customer satisfaction 9.5/10
Account information 9/10
Investment selection 8/10
Website 4.5/5
Total 80/100
Grade A

• No. 2 / E*Trade Canada / canada.etrade.com / Parent: E*Trade Financial Corp.

Lowdown: Investors, meet the champion of low-cost investing for mainstream investors. Whereas most brokers charge a minimum $25 to $29 to trade stocks on-line, you'll shortly be able to trade for a flat $9.99 at E*Trade if you have a combined $50,000 in your accounts at the firm. There are also no administration fees for registered retirement savings plans here, and mutual funds are commission-free. Low fees are a false economy if a broker scrimps on the services it provides, but E*Trade comes through with enough to satisfy most clients.

Bottom Line: If you trade stocks a lot and want to cut costs, you'd be remiss if you didn't check out E*Trade.

Report Card
Fees and commissions 24.5/25
Tools and research 12/20
Trading 15/20
Customer satisfaction 7.5/10
Account information 6/10
Investment selection 8/10
Website 4.5/5
Total 77.5/100
Grade A-

• No. 3 / Credential Direct / credentialdirect.com / Parent: The credit union movement

Lowdown: This low-profile but formidable outfit has clearly put some thought into providing a well-rounded service. Stock trading commissions are reasonable thanks in part to a $250 cap for on-line stock commissions, there are no charges to buy or sell funds, and fees for registered accounts are low. Credential also does a great job of documenting how your portfolio is performing, and it has some pretty good tools for researching stocks (more analyst reports would be welcome).

Bottom Line: Another stealth competitor to challenge the banks.

Report Card
Fees and commissions 19.5/25
Tools and research 13/20
Trading 14/20
Customer satisfaction 9.5/10
Account information 9/10
Investment selection 8/10
Website 4/5
Total 77/100
Grade A-

• No. 4 / BMO InvestorLine / bmoinvestorline.com / Parent: Bank of Montreal

Lowdown: BMO InvestorLine, the top-ranked broker in the past four Globe rankings, never stops improving. Last year, one of its chief weaknesses was a lack of analyst research for clients to peruse. Lately, InvestorLine has begun adding reports by analysts at Standard & Poor's and BMO Nesbitt Burns Inc. InvestorLine has long been a leader in showing clients how their investments are performing, and this year it has introduced a feature that compares individual returns to a collection of financial market benchmarks. It's also a leader in providing guided portfolios to investors who need direction.

Bottom Line: Strong execution of a "guided investing" theme, which means providing investors with the means to succeed.

Report Card
Fees and commissions 14.5/25
Tools and research 17/20
Trading 16/20
Customer satisfaction 7.5/10
Account information 9/10
Investment selection 8/10
Website 4/5
Total 76/100
Grade A-

• No. 5 / TD Waterhouse / tdwaterhouse.ca / Parent: Toronto-Dominion Bank

Lowdown: These guys are top dog by far in the on-line brokerage business, if you measure by number of clients and the strength of the brand name. Otherwise, TD is edging toward mid-pack status. Oh, sure, it offers a sturdy trading platform with enough research and analysis tools to keep stock market fanatics busy for ages. But costs are high for mainstream investors and active traders alike, and there's a lack of extra-value features like personalized return reporting for account holders.

Bottom Line: A high-cost broker needs to deliver more.

Report Card
Fees and commissions 12/25
Tools and research 18/20
Trading 17/20
Customer satisfaction 6.5/10
Account information 6/10
Investment selection 6.5/10
Website 4/5
Total 70/100
Grade B

• No. 6 / ScotiaMcLeod Direct Investing / scotiamcleoddirect.com / Parent: Bank of Nova Scotia

Lowdown: This is the broker that best deploys its library of analyst reports on stocks. There are lists of top stock picks at sister firm Scotia Capital, individual stock reports, daily updates and weekly musings, all of them laid out in an on-line research centre that's a model of its kind. If this turns your crank, then you won't mind putting up with the clunky navigation on the rest of the website, the lack of on-line bond trading and nothing much at all to show how your account is performing.

Bottom Line: A little rough, but likeable.

Report Card
Fees and commissions 15/25
Tools and research 14/20
Trading 15/20
Customer satisfaction 8/10
Account information 6/10
Investment selection 5/10
Website 3/5
Total 66/100
Grade C+

• No. 7 / CIBC Investor's Edge / investorsedge.cibc.com / Parent: Canadian Imperial Bank of Commerce

Lowdown: Investor's Edge is the typical mid-tier on-line broker -- it does most things reasonably well, but stands out in none. Key benefits include a commission schedule that allows you to trade stocks for as little as $25 for market orders, on-line bond and GIC trading, and lots of stock research from CIBC World Markets Inc.

Bottom Line: Not the best, but far from the worst.

Report Card
Fees and commissions 13/25
Tools and research 13/20
Trading 15/20
Customer satisfaction 6/10
Account information 6/10
Investment selection 6/10
Website 3.5/5
Total 62.5/100
Grade C

• No. 8 / RBC Direct Investing / actiondirect.com / Parent: Royal Bank of Canada

Lowdown: The former RBC Action Direct (the name changes officially next month) is a work in progress. Commissions have been cosmetically cut to $28.95 from a sector-leading $29.95, real-time account updates are coming imminently and the selection of research tools is much improved. A highlight is access to reams of equity research from RBC Dominion Securities Inc. and S&P.

Still to do: Add features like personalized account performance reporting that justify the comparatively high commissions.

Bottom Line: On the upswing.

Report Card
Fees and commissions 14/25
Tools and research 16/20
Trading 13/20
Customer satisfaction 4.5/10
Account information 5/10
Investment selection 6/10
Website 3/5
Total 61.5/100
Grade C

• No. 9 / National Bank Direct Brokerage / nbdb.ca / Parent: National Bank of Canada

Lowdown: A somewhat lean but still adequate service for mainstream investors. Research tools are nothing special over all, but NBDB is strong, oddly enough, in the sort of toys that active stock traders might like. For example, it offers a lot of technical analysis through its use of material from a data provider called StockScores. Also, there's a nifty streaming quote and charting tool called Market Matrix.

Bottom Line: Lags the other bank-owned brokers, but not by much.

Report Card
Fees and commissions 14/25
Tools and research 12/20
Trading 11/20
Customer satisfaction 6/10
Account information 6/10
Investment selection 6/10
Website 2.5/5
Total 57.5/100
Grade C-

• No. 10 / Disnat / disnat.com / Parent: Mouvement des caisses Desjardins

Lowdown: Desjardins appears to be lavishing more attention on DisnatDirect, an on-line broker for serious traders, than on the more mainstream Disnat. Still, Disnat is being upgraded to the point where it offers the rudiments of a decent package, including on-line bond trading (coming shortly) and stock research from analysts at Desjardins Securities.

Bottom Line: Like driving a strippo car.

Report Card
Fees and commissions 13/25
Tools and research 11/20
Trading 11/20
Customer satisfaction 8.5/10
Account information 6/10
Investment selection 4/10
Website 2/5
Total 55.5/100
Grade D+

• No. 11 / HSBC InvestDirect / investdirect.hsbc.ca / Parent: HSBC Holdings PLC

Lowdown: HSBC is an international bank, and HSBC InvestDirect offers both global equity research and on-line access to the Hong Kong stock market. So why isn't this broker playing up its international edge instead of trying and failing to be all things to all investors? Just asking.

Bottom Line: It's time to rethink this operation because the status quo is weak.

Report Card
Fees and commissions 13/25
Tools and research 11.5/20
Trading 13/20
Customer satisfaction 3.5/10
Account information 2/10
Investment selection 6/10
Website 1/5
Total 50/100
Grade D-

• No. 12 / eNorthern / enorthern.com / Parent: Northern Securities Inc.

Lowdown: With its $24 minimum commission, eNorthern used to be the on-line brokerage sector's cheap date. Now that E*Trade and Qtrade have lowered commissions below $20, eNorthern's suddenly a mid-price player with a no-frills service.

Bottom Line: Stop by if you want to see what on-line brokers were like in the days when it was enough just to take stock-trading orders from clients.

Report Card
Fees and commissions 15/25
Tools and research 3/20
Trading 7/20
Customer satisfaction 8/10
Account information 2/10
Investment selection 0/10
Website 3/5
Total 38/100
Grade F

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Interview with HSBC Canada's Lindsay Gordon

Libby Znaimer, Financial Post, 16 September 2006

Lindsay Gordon is the Vancouver-based president and CEO of HSBC Bank Canada.

Q What are your key functions?

A I spend my days ensuring that we have the right strategy in place and that we execute it. I spend equal amounts of time with staff and with customers. For the most part, I work with our Canadian employees, but because we're a global organization, I also spend time with staff in other parts of the world. I have a lot of meetings in Chicago, New York and London.

Q Hours of work per week?

A This is really a 24/7 job even though I obviously don't work 24 hours a day. I'm on deck and on call 24 hours a day, except for two weeks in August when I really get away. I usually start at 7:30 a.m., and work until 6 or 6:30 p.m., and I have about three evening functions a week.

Q How often do you take work home?

A Most evenings I take something home. Sometimes it's heavy and sometimes it's light, but I never go home without my briefcase.

Q How many people work for you?

A We have 7,000 people in Canada. I have 11 direct reports, plus my assistant.

Q What do you wear?

A It's not necessarily banker's pinstripes, but I do wear a suit and tie, except on casual Fridays. Then I wear a jacket with no tie -- but the tie goes back on at the first inkling of a customer appointment.

Q How much e-mail do you get?

A I get about 100 e-mails a day and I delete 15 to 20. I respond to 30 or 40 very quickly.

Q How many phone calls do you get?

A The calls have fallen off since e-mail has become prevalent. I now get 25 a day. I always answer my own phone when I'm there. I don't know how easy it is to get my phone number through the bank, but my direct line and my cell number are on my business card.

Q How often do customers call you directly?

A Most of the customers who call are relatively large customers, and I receive about one of those a day. In terms of the other customers who call, it's usually the result of a complaint we haven't been able to resolve. Fortunately, I get very few of those, maybe one a week, and I take them all. [My meeting with Mr. Gordon is the result of a customer complaint. After a series of bank errors, HSBC asked what they could do to make it up to me. "Lunch with the president," was my response. Mr. Gordon and his senior vice-president Geoff Hoy graciously obliged me.]

Q How much time do you spend on your cellphone?

A It's always on, always with me, but I don't spend a lot of time on it.

Q What about your BlackBerry?

A The BlackBerry is always on, and I use it extensively when I'm out of the office.

Q Do you turn these devices off?

A The only time I turn them off is in hotel rooms at night.

Q How many meetings do you attend?

A I have five or six meetings a day -- that includes face-to-face, conference calls and videoconferences. For the most part, they are useful and productive. I usually control the agenda and I make sure they're focused.

Q How often do you travel?

A Most weeks I'm somewhere. This week it's Toronto. Next week I'll be in Chicago, and I'll travel to Ottawa the week after that.

Q Is your desk messy or neat?

A I'd say it's in the middle. It's not messy, but there are piles of things. I am a very organized person, so I know what's there. They are key documents and files that I want quick access to.

Q What's the best perk?

A We sponsored Formula One racing and I got the opportunity to spend some time with Jackie Stewart, who is a legend in the racing world.

Q What's your management philosophy or guiding management principle?

A Treat others the way you expect to be treated yourself and be a straight shooter. I really believe in calling it the way it is.

Q What are the best and worst parts of that?

A The best part is the opportunity to have face-to-face meetings. There's no substitute for that. The worst part is the time wasted between leaving the house and getting on the plane.

Q What's your pet peeve?

A People who don't respond on a timely basis. It doesn't happen inside the organization because I'm the CEO and people get back to me. Sometimes people on the outside don't have the same sense of urgency about dealing with things.

Q Do you have hobbies, sports or a fitness routine?

A I love to ski and I'm an avid sailor. Right now, my workouts are limited because I need a hip replacement.

Q What's your management philosophy or guiding management principle?

A Treat others the way you expect to be treated yourself and be a straight shooter. I really believe in calling it the way it is.

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Sun Life Shops MFS

The Globe and Mail, Andrew Willis, Eric Reguly, Sinclair Stewart, 15 September 2006

Sun Life Financial Inc. is holding a $4-billion beauty contest in an attempt to fix its broken U.S. money management arm.

The Canadian insurer is interviewing at least four potential partners for its MFS Investment Management unit, which suffers from high costs, poor performance and a lack of stock market respect.

Toronto-based Sun Life has hired investment bank Morgan Stanley to screen merger candidates for MFS, say sources in the insurance and investing banking industry. All the possible marriage partners are large U.S. fund managers, including Nuveen Investments Inc. and Franklin Resources Inc.

Sun Life chief executive officer Donald Stewart is looking at vending all of MFS for a smaller stake in a much larger firm after weighing the option of selling a portion of the Boston-based company in an initial public offering, and simply keeping control of MFS and trying to fix it.

“Sun Life is getting all sorts of interest in a deal, but whether Stewart is willing to pull the trigger is another question,” said one investment banker working for a possible partner.

A spokesman for Sun Life said MFS's results are improving, and added: “We consider all strategic options across all of Sun Life's businesses internationally, not ruling out anything that builds greater shareholder value for the future.”

MFS is an 80-year-old company; Sun Life bought it in 1982, and analyst estimate that MFS is now worth a minimum of $4-billion (U.S.). With $168-billion of assets under management, MFS ranks as 45th largest U.S. money managers; a deal would vault it into the top tier.

MFS's profitability and fund performance lag its peers, and in the past, Sun Life executives have expressed frustration with the perceived lack of premium that investors ascribe to the U.S. unit. Sources say Mr. Stewart's preferred method of fixing MFS is merging the firm with a rival of similar or larger size, and taking a minority stake, perhaps one-third, of the new entity.

There are precedents for this structure. Sun Life owns 35-per-cent of CI Financial, the income trust that is one of Canada's biggest mutual funds company, and 56-per-cent of McLean Budden, one of Canada's largest institutional money managers. And in the consolidating U.S. industry, Citigroup Inc. merged its funds with Legg Mason Inc. and Merrill Lynch & Co. Inc. tied up with BlackRock Inc. to create industry leaders.

If Sun Life can get to the altar, analysts see the insurer's stock soaring. Robert Wessel at National Bank Financial said in a recent report that the right merger would boost Sun Life's shares 14 per cent. “We believe a combination would be Sun Life's preferred option for MFS, since it offers the greatest potential strategic and financial benefits,” he said.

According to industry and financial sources, the companies that Sun Life sees as possible MFS partners include:

Nuveen Investment, a publicly traded company in Chicago with $149-billion in funds with a number of different brand names and styles.

Franklin Resources, the San Mateo, Calif.-based money manager whose $494-billion of assets include the Templeton fund family.

The money management arm of Morgan Stanley, which has assets of $440-million, mostly in institutional funds.

Putnam Investments, a Boston-based, $181-billion fund manager that is a subsidiary of Marsh & McLennan Cos. Inc.

For all the work being done on the spin out, Sun Life does not need to do a deal, and may opt to stand pat. Genuity Capital Markets analyst Mario Mendonca said in a report last month: “We are inclined to believe that a sale will be considered at a later date after [profit] margins are improved, allowing Sun Life to extract a better valuation.”

There are internal steps MFS can take to boost profitability, including cutting compensation, outsourcing administration and moving to less expensive office space. National Bank Financial's Mr. Wessel estimates that if MFS could simply match its peers on profitability, Sun Life's share price would rise by up to C$2.50. The stock closed Friday at $44.60 on the Toronto Stock Exchange, down 5 cents.

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For more information, go the the 19 September 2006 entry on this Blog.

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DBRS Views TD Investment in TD Ameritrade as Favourable

Investment Executive, James Langton, 15 September 2006

Dominion Bond Rating Service says it views yesterday’s announcement that TD Bank has entered into a hedging arrangement designed to facilitate an increase in the bank’s holdings in TD Ameritrade Holding Corp. in 2009 as favourable.

In a research note, DBRS points out that TD is currently limited by the TD Ameritrade Stockholders Agreement to beneficial ownership of 39.9% of Ameritrade until January 2009, when the limit increases to 45%. “The hedging arrangement is designed to lock in a price for the additional shares that will bring the investment up to 45% until that time,” it explains.

DBRS says that it views the investment in Ameritrade as favourable, “in part because the business has sufficient scale to compete effectively in its market niche, with a number two position in the U.S. industry.”

“While DBRS views the bank’s sub-50% ownership position as a negative factor, even though it is the largest shareholder, this aspect of the investment is largely mitigated by TD’s ability to nominate five of the 12 members of the board of directors,” it adds. “The deal is structured such that TD will not exercise any voting rights over its investment in Ameritrade in excess of 39.9% prior to 2009.”

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Scotiabank Eyes Malaysia, but Denies Bid

Reuters, Mark Bendeich, 15 September 2006

Canada's Bank of Nova Scotia confirmed on Friday it was looking out for acquisitions in Malaysia, but denied a report that it planned to buy an indirect stake in the country's fourth-biggest lender.

Malaysia's Business Times, citing unnamed sources, said Scotiabank planned to buy 32.8 percent of Rashid Hussain, parent of local lender RHB Capital, for between 550-600 million ringgit ($150-$163 million).

But Rasool Khan, head of Scotiabank's Malaysian unit, told Reuters that it had no such plan to buy the stake from Rashid Hussain's major shareholder, Utama Banking Group.

"The Bank of Nova Scotia has a very keen desire to expand in four countries in Asia -- India, China, Malaysia and also Thailand and if the opportunity presents itself to us, we would be very keen on it," Khan said in a phone interview.

"But we have not had any direct discussions at a decision-making level with UBG, neither do we have a plan or have made an offer at this stage and at this price they have quoted."

The newspaper report followed Utama's rejection on Thursday of a bid for the stake from Malaysia's state pension fund, and it said Scotiabank officials had held talks with Utama officials.

Khan denied Scotiabank, Canada's third-largest bank by assets, had held bid talks and said officials from both banks met from time to time in the ordinary course of industry meetings.

"We are a very small banking community but we have never met with the chief minister of Sarawak, which would be the case if we were interested in buying," he added. Utama is controlled by the family of Sarawak Chief Minister Abdul Taib Mahmud.

Malaysia's overcrowded banking market is expected to continue consolidating after its second-biggest bank, Bumiputra-Commerce Holdings Bhd, broke a drought of domestic mergers with its purchase of smaller rival Southern Bank this year.

That deal left nine local banks, still considered too many.

The government and central bank want local banks to become larger so they can compete with big foreign lenders abroad and at home, where deregulation promises to intensify competition.

Foreign banks are keen to expand in Malaysia, which has a young population with rising incomes and low interest rates, but they cannot own more than 30 percent of a local bank and are heavily restricted in the number of branches they can operate.

Global banks Citigroup and Standard Chartered have preferred to wait for deregulation, and very slowly expand branch networks, than invest in a local lender without control.

In Malaysia, banks are not allowed to enter bid talks without approval of the central bank, which is viewed as being reluctant to allow a foreign bank to gain management control. Foreign banks already command about 22 percent of total loans in Malaysia.

Rashid Hussain holds about 65 percent of RHB Capital, seen as one of the weaker local banks and a potential takeover target.

On Thursday, Utama rejected a bid for its Rashid Hussain stake from state pension manager the Employees Provident Fund.

The fund already owns 31.7 percent of Rashid. Its unspecified bid was revealed to the market in June, raising speculation that the fund was working with other state agencies, such as investment arm Khazanah, to engineer a bank merger.

Khazanah has a direct stake in RHB Bank, a unit of RHB Capital, and owns a major interest in Bumiputra-Commerce and unlisted Islamic lender Bank Muamalat. It has a minor interest in the country's largest lender, Malayan Banking.

Utama shares were down 3.6 percent at 1.08 ringgit in late-morning trade. Rashid Hussain shares were off 1.6 percent at 1.25 ringgit and RHB Capital shares unchanged at 2.6 ringgit.

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Bloomberg, Sean B. Pasternak

Bank of Nova Scotia, Canada's third-biggest bank, may make acquisitions in Malaysia, following a Business Times newspaper report that the bank plans to bid for a stake in Rashid Hussain Bhd.

``Scotiabank remains interested in looking at opportunities in Malaysia,'' spokesman Frank Switzer said today in a telephone interview. He declined to comment on plans for any specific bank.

Utama Banking Group Bhd. yesterday rejected an offer by a pension fund to buy its 32.8 percent stake in Rashid Hussain, which controls the country's fourth-biggest bank.

Scotiabank, based in Toronto, may offer between 2.30 ringgit and 2.50 ringgit a share for Utama Banking Group's stake, the Business Times said, without saying where it got the information. The Rashid Hussain stake is valued at 304 million ringgit ($82.8 million), based on the closing price yesterday.

Scotiabank, which has operations in about 50 countries, has invested more than C$1 billion ($891 million) on international acquisitions in the past year, including purchases in Peru and the Dominican Republic. Chief Executive Officer Richard Waugh has said that the bank would look at acquisitions in markets where they already have operations, which includes Malaysia. Waugh was in neighboring Thailand this week.

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HSBC Private Bank Set to Launch in Canada

Dow Jones, Henry E. Teitelbaum, 14 September 2006

London - When HSBC Holdings PLC began building its private banking segment some eight years ago, relationships were still local, accounts were offshore and clients were primarily concerned with safeguarding their wealth.

As chief executive of HSBC Private Bank for the past seven years, Clive Bannister has done more than just witness the changes that have since swept the industry. He has helped to engineer one of the most spectacular growth stories in global private banking.

Bannister, in an interview with Dow Jones Newswires, said that HSBC is now "rather spoiled for choice" as it presses its advantages in the growth markets where it dominates, or in the other countries where it is now competitive.

He also explained how a series of clever moves and at least one lucky break allowed HSBC to grow private banking from modest beginnings into the world's third-largest private bank by assets under management.

"We had a vision for what an international private bank would look like," Bannister said. "And then we went out and either filled in the gaps externally or did an immense amount of organic growth."

In 1998, HSBC had five small private banks employing about 750 people in 10 countries, contributing $80 million to annual pretax profit. Under Bannister's leadership, HSBC Private Bank has increased staff to over 6,000 in 35 countries and 82 locations.

Its contribution to parent company profit will this year top $1 billion for the first time after hitting $612 million in the first half.

To compete with private banking powerhouses UBS AG and Credit Suisse Group, Bannister recognized that HSBC needed to build or acquire something to help it stand out.

"In the first vision statement we put down, we said we wanted to have a world-class trust and tax capability. I looked at our two biggest competitors...and they were not in that space," he said.

The strategy anticipated a major change in the services that wealthy people would seek from private banks, namely a shift to onshore banking.

Bannister explained that while over the past 100 years or so, people looked to offshore private banking as "an environment that could be relied upon" to preserve their wealth, there was now a generation of business school-trained people who demanded easier access to their money.

"They were now building businesses," he said. "They don't want money a million miles away from where they can use it."

At the same time, the global economy has been growing, wealth has reached new corners of the world and Western legal systems have been adopted, reducing the need to keep wealth offshore.

The shift to onshore banking brought with it a new demand for tax advisory services, as well as increased trust management services, Bannister said. Unlike offshore banking, where taxes are determined locally, the relevance of tax issues to wealth management grows dramatically when banking onshore.

"With an onshore relationship," he said, "the first conversation we would have is: 'Well, let's talk your tax position.' It's the biggest way in which you look after your wealth management over time."

In this regard, Bannister says HSBC got lucky when in 2002 accounting firm Arthur Andersen was brought down by the Enron scandal.

"We were building up our tax business in both Asia, Hong Kong and London, and then Arthur Andersen happened and I think you can honestly say that was serendipity."

HSBC was able to buy the tax advisory services of Arthur Andersen, consisting of 25 partners and 180 other staff, at auction for $15 million, and establish HSBC Wealth and Tax Advisory Services.

Another key acquisition for HSBC Private Bank came two years later when it acquired the Bank of Bermuda. Bannister said the move expanded HSBC's presence in the management of trusts - which are another growing requirement of sophisticated onshore clients as they look for legal structures to separate business investments from family savings, organize estates for the next generation or in the event of divorce.

Bannister counts two other acquisitions as important to the growth of HSBC Private Bank over the past eight years, including the $9.7 billion purchase in 1999 of Republic Bank of New York in 1999, and the $11 billion acquisition of Credit Commercial de France in 2000, which brought not only private banking customers, but a presence and expertise in asset management.

Taken together with HSBC's global presence and strong capital base, Bannister said the private bank's expanded capabilities have allowed it to tap fast-growing demand for wealth-related services in developing economies, notably in Asia, the Middle East and in Latin America.

HSBC's existing traction in these markets has served the private bank well as global wealth and trade has expanded, Bannister said, allowing HSBC Private Bank to provide a widening range of services to a growing Diaspora of wealthy people and their families across the globe.

More generally, Bannister describes HSBC's global presence as of "inestimable advantage" in assisting customers.

"I don't think our internationalism is bolted on," he said. "I think it's rather built into the DNA."

And it is producing some rather novel services.

For example, HSBC is now providing immigration services to clients that begin with the client making an investment in the destination country and ultimately leads to the granting of citizenship.

"It started in Canada, and now we do it in other jurisdictions," Bannister said, notably in the U.K. and Hong Kong. "I think it shows an empathy with a customer group because you're talking about some very personal, intimate things." HSBC Private Bank plans to officially launch in Canada in the fourth quarter of this year.

HSBC Private Bank has also innovated services such as World Vision to help clients and their families consolidate financial information from multiple financial institutions, across asset classes and currencies into a single statement account.

Bannister said he is "enormously confident" of HSBC Private Bank's position in the context of continued growth in wealth management services globally, and in his designated successor, Christopher Meares, who runs HSBC Private Bank's businesses in the U.K., Channel Islands and Luxembourg, will take over from him in March 2007.

For his part, Bannister will transition to a new role running HSBC's insurance business.

In terms of HSBC Private Bank's expansion, Bannister hinted that the U.S. might be a priority going forward.

"America is still half of the world's wealth. It is an enormously wealthy country and we are underrepresented there as a private bank," he said.

But Bannister said Asia is also a natural place for private banking to expand due to HSBC's history, which began there, and its outsized footprint in the region.

He said HSBC also sees great opportunities in Latin America and in Europe, where in addition to the wealth emerging in eastern and central Europe, there are generational issues in an aging western European population.

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TD Banknorth Feeling the Heat

Boston Globe, Steven Syre, 14 September 2006

No one will accuse TD Banknorth Inc. of sugarcoating its story.

TD Banknorth executives were downright gloomy during presentations to investor conferences in Canada and New York this week. The message: Consensus Wall Street forecasts for the company's profits were too high. Business expenses were up, and demand for loans was leveling off. Executives at Toronto-Dominion, the Canadian financial giant that owns 56 percent of TD Banknorth, were similarly downbeat on the prospects for earnings growth anytime soon at its US banking affiliate, headquartered in Portland, Maine.

TD Banknorth isn't doing business in a vacuum. The normal relationship between short-term and longer-term interest rates is upside down at the moment, squeezing most of the profit out of the lending business. Deposit rates have gone up much faster than loan rates. Meanwhile, bankers worry about a recession. They sweat over the sinking real estate market.

"It's our personality to be upfront," TD Banknorth chief executive Bill Ryan says about his company's business presentations. "I think we're probably a little more nervous than other people."

Nervous or not, TD Banknorth stands out in the current environment because it continues to spend serious money building up its franchise. Ryan had a mandate from Toronto-Dominion when the Canadians bought a controlling interest in his bank last year, and it was all about growth.

TD Banknorth soon moved into the New York area with its $1.9 billion purchase of New Jersey's Hudson United Bancorp. It followed that deal up with the acquisition of a second New Jersey bank. In both cases, TD Banknorth paid very full prices for the businesses it was buying.

Now, TD Banknorth is spending lots of money on advertising and other things to build its business in a new market. At a time when banks might be advised to pull in their horns, TD Banknorth has its checkbook out.

Interest-rate problems didn't sneak up on TD Banknorth. Executives have repeatedly restructured their balance sheet, protecting it against the dangers of interest rate shifts, but hurting the bank's short-term financial results in the process. Ryan did this so often he became known in banking circles as a serial restructurer.

Those were good long-term decisions, but created a string of short-term financial disappointments. TD Banknorth's performance seems likely to fall short of expectations again. TD Banknorth stock, which closed yesterday at $28.84, is down about 4 percent over the past year.

Analyst Mark Fitzgibbon of Sander O'Neill & Partners heard TD Banknorth's most recent warnings and cut his rating on the company's stock to "sell" on Tuesday. Among other reasons, he said, the company's earnings outlook was just too weak.

Another reason had to do with TD Banknorth's majority owner. Fitzgibbon said his hopes that Toronto-Dominion would buy out public stockholders who own the other 42 percent of TD Banknorth at a fat premium had faded.

That hints at a sticky perception problem for TD Banknorth and its majority owner. Toronto-Dominion can own up to 66 percent of TD Banknorth, but must negotiate with independent directors if it wants to buy the rest.

Most analysts think Toronto-Dominion will do just that, eventually, and decisions that create long-term value but drive down the fair price of TD Banknorth stock at the time of negotiation would seem to be in the Canadians' interest. Pressing ahead with expensive expansion plans while the banking environment goes into the tank could be one such case.

Ryan has a short answer to that idea: no way.

"We wouldn't sell in a downturn," he says. "We'd sell when we could get real value. Just because they make an offer, it doesn't mean we have to accept it."

Ryan also notes shareholders would have to approve any deal.

Ryan also says TD Banknorth will put the brakes on more big-ticket expansion, at least until business improves. "You could say maybe we're going to be dumb and just buy more banks," he says. "But we're not. We're going to be more disciplined."

In the meantime, everyday banking will be tougher. Just ask Bill Ryan. He's nervous.

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RBC Woos New Canadians

The Toronto Star, Tara Perkins, 14 September 2006

The Royal Bank of Canada is in talks with global banks that operate in India to sign a cross-referral deal, one of numerous steps Canada's biggest bank is taking to woo newcomers to Canada.

As this country's big banks fight for new customers, immigrant communities have become a major battleground.

And rather than wait for new Canadians to land in the country, the banks are taking steps to win them over before they've even set foot on Canadian soil.

"We are in far-advanced discussions with a number of key global partners that are already established in India to look at a cross-referral agreement," Dave McKay, RBC Financial Group's head of personal banking, said in an interview.

"In the absence of any branch network for RBC in India, we are looking at other partners who might help accelerate our plan," he said.

An agreement would see the partner in India refer people who are thinking about emmigrating to Canada to the Royal.

It would be RBC's first cross-referral agreement, said McKay, who added that the bank is now allowing non-residents of Canada to open accounts.

The move is part of Royal's broader strategy to boost its business from new Canadians. Chief executive Gord Nixon and other executives outlined that strategy at a luncheon yesterday for about 35 members of the Chinese and South Asian media.

The meeting comes about a month after BMO Financial Group announced it was buying bcpbank Canada, the Canadian arm of Portugal's Millenium bcp, saying the chance to provide multicultural financial services is "one of the biggest business opportunities" out there.

In November, the Bank of Nova Scotia — which has the largest international operations of Canada's big banks — bought the 10 Canadian branches of the National Bank of Greece.

"This has become a bit of a theme," said Genuity Capital Markets analyst Mario Mendonca, who noted that statistics and history show that immigrants become more affluent over time, making them an attractive customer segment.

Nixon bristles at the suggestion Canada's banking market is mature with limited opportunities for growth, citing as an example the opportunity to boost wealth-management offerings as the baby boomers age.

But, "if you look at the pure growth of customers, a large percentage of new customers will come from immigrants, new Canadians, aboriginals, different cultural groups," he said in an interview.

"And I think the ability to find ways to really do a good job servicing those cultural communities will really be a differentiator in terms of growth. And it's one of the reasons I think all the institutions are paying a lot of attention to this sector," he said.

RBC's Beijing office was upgraded to branch status this year, and it attempts to attract some of the 35,000 immigrants who come from China to Canada each year. Shanghai would be an obvious location for a new branch, but no timetable has been set for potentially opening one there, Nixon said.

RBC launched a Chinese-language section of its website for new Canadians in December, and by April, traffic to the "Welcome to Canada" site had increased tenfold, from 500 hits a month to 5,000, McKay said.

"We have opened hundreds of accounts online and it's growing at a very strong clip," he said.

RBC also has developed a proprietary credit-approval system that allows new immigrants to obtain mortgages and credit cards without a Canadian credit history, Nixon said, and he's hoping to expand that ability into areas like wealth-management products.

Meanwhile, a large number of the 50 branches RBC is opening in the Greater Toronto Area over three years will be located in areas that contain a high concentration of Chinese and South Asian new Canadians, such as Markham and Richmond Hill.

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