Canada’s two biggest banks are hoping to take advantage of turbulence in the global financial sector in order to expand their operations.
Royal Bank of Canada, which recently sold its money-losing retail branches in the United States for $3.6-billion (U.S.), is hunting for acquisitions, but will most likely be looking outside Canada for those deals. RBC chief executive officer Gordon Nixon told an investor conference on Wednesday that Canada’s largest bank by assets recently looked at takeover opportunities in Canada, but opted out because they were too risky or did not fit the bank’s strategy.
“We have backed away from recent acquisition opportunities in Canada, as they were inconsistent with our domestic distribution strategies and our margin and risk objectives,” Mr. Nixon said. “But we will continue to look for ways to grow our domestic asset base.”
Meanwhile, Toronto-Dominion Bank has set its sights on expansion in New York and Quebec. Canada’s second-largest bank by assets is the No. 5 bank in New York City, but chief executive officer Ed Clark told analysts at the same conference that TD could be third in “the next few years.” TD also wants to build a bigger presence in Quebec, where it has 12 per cent of the market.
In both places, TD said it would look to build more branches, but in the United States, TD would consider buying up a smaller lender only if the cost of acquiring those branches were less expensive than developing its own locations. TD has 1,300 branches in the U.S., compared with 1,100 in Canada.
“If you think of the greater New York City, the total deposit base is about the deposit base of Canada,” Mr. Clark told the conference hosted by Scotia Capital in Toronto.
TD announced Wednesday a plan to raise $612-million (Canadian) by issuing eight million shares at $76.50. The bought deal, led by TD Securities, stems from its recent purchase of MBNA’s Canadian credit card portfolio. When the deal was announced, the bank said it would later issue shares.
Buying the credit card assets was a chance to fill in “strategic gaps,” in TD’s portfolio, Mr. Clark said, since the bank was forced to sell off credit card assets more than a decade ago owing to competition rules when it acquired Canada Trust.
TD purchased three small banks in Florida last year in deals with the Federal Deposit Insurance Corp., which finds buyers for struggling financial institutions in the U.S. However, Mr. Clark said the bank won’t likely attempt more since the best assets have largely been picked over.
“The better franchises probably have gone and now you’re down to smaller deals,” Mr. Clark said. “And a lot of people look at these and say, well, is it worth the energy to do these smaller deals?” In many cases, TD can easily build branches in key markets itself, he said.
RBC has $2.62-billion (U.S.) of cash from the sale of its U.S. retail bank to Pittsburgh-based PNC Bank Corp. this summer in a $3.6-billion cash-and-stock transaction. Mr. Nixon said the bank, the world’s sixth-biggest in terms of wealth management, is looking to expand in wealth management around the globe. But if no deals present themselves, RBC is in no rush.
“In this environment, we’re comfortable having excess capital and taking less risk than others,” Mr. Nixon said. “We can make further investments in our existing businesses, take advantage of this economic turbulence and market dislocation to make strategic acquisitions” or return capital to shareholders through buybacks or dividends, he said.