Canadian Banks Shop for Growth in US

Wednesday, 22 Dec 2010 12:42 AM

 

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Toronto-Dominion Bank and Bank of Montreal could take a breather from big U.S. buys after two deals in the last week, but Canadian banks will still troll for assets in a recovering U.S. economy.

After emerging from the financial crisis largely unbruised, Canadian lenders have used large capital positions to snap up bargain-price players.

BMO said last week it would buy troubled Wisconsin lender Marshall & Ilsley for $4.1 billion, fast-tracking a U.S. growth plan that had been stuck in neutral.

TD said on Tuesday it would buy Chrysler Financial for $6.3 billion, betting that the recovering U.S. auto sector will boost loan demand for its U.S. branch network.

"This latest move by TD shows that the Canadian banks are very well positioned," said Anthony Michael Sabino, a law and business professor at St. John's University in New York.

"I think they realize that eventually we will come out of the great recession, and doing so... consumers will start spending money again."

Before BMO's move, the largest recent deals were Royal Bank of Canada's $1.5 billion bid for British fund manager BlueBay Asset Management in October and Bank of Nova Scotia's C$2.3 billion purchase of DundeeWealth.

STOCKPILED CAPITAL

After stockpiling capital during the financial crisis, the banks now need to put it to work, said John Kinsey, a portfolio manager and Caldwell Securities in Toronto.

"They're still in good shape and they have the money and there's not a lot of room to expand in Canada," he said.

"They have to really go outside if they want to grow."

The Canadian banks have now carved out three distinct areas of retail banking influence south of the border: BMO in the Illinois-Wisconsin area, TD on the east coast, and Royal Bank of Canada in the southeast.

The housing crisis hammered Royal's North Carolina-based retail bank, and the bank recently suggested it is no longer focused on growing the bank.

But Royal and BMO could make small moves to expand its capital markets or wealth management presence, analysts said.

TD expects strong growth from its new auto lending platform, although Chief Executive Ed Clark said further acquisitions on the auto front were unlikely

"I don't think you have to do any more acquisitions to do this," he said in an interview. Within 2 or 3 years, this will be originating $1 billion in loans a month, so you wouldn't spend any money buying something.

Observers also said BMO will have its hands full integrating its acquisition for the next months.

But the window of opportunity is not yet closed.

"There is a limit to how much they are going to do here, I suspect. But I doubt that they are at that limit yet," said Chip MacDonald, a financial institutions lawyer at Jones Day.

© 2014 Thomson/Reuters. All rights reserved.

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