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Bharat Masrani, the incoming CEO of TD Bank.

RICH SCHULTZ for the globe and mail

Bharat Masrani has high-class problems.

The incoming chief executive officer of Toronto-Dominion Bank has an issue many bankers would love: He's swimming in deposits. And one way he can fix it when he takes over from Ed Clark shortly is to start lending more to big companies in the United States.

At the moment, TD's wholesale banking business (so-called in part because it's a business of big loans, instead of the small loans that make up retail banking) is relatively small, thanks to the way the bank has grown in the past decade.

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In the early 2000s, TD made a conscious decision to increase its focus on its wholesale business. The bank was a laggard in key businesses such as merger advisory work and underwriting of stock sales, which can generate lucrative fees counted in millions of dollars per transaction. In 2006, Mr. Clark laid down a challenge – the securities business was on the rise (he called it the "stealth bomber" of the TD story) and he wanted to push harder. Not satisfied with simply being recognized as Canada's No. 3 dealer, he wanted to be close to moving into second spot a few years later.

Then came the financial crisis, which upset everybody's plans. Beyond that, however, the industry changed. Other banks diversified their wholesale banking strategies hugely in that time. Royal Bank of Canada moved into the U.S. in a big way, building a securities and wholesale banking business south of the border that is eclipsing its Canadian business in size. Bank of Montreal did something similar. Like RBC, it used the opportunity created by the financial crisis to hire bankers from struggling rivals. Canadian Imperial Bank of Commerce, wounded by the crisis, got smaller and more focused. Bank of Nova Scotia ramped up its focus on oil and gas, and on areas such as South America.

As for TD, as much as its securities business did grow, its personal banking business grew faster. The bank used the crisis to make acquisitions of U.S. banks, auto lenders and credit card portfolios. The wholesale business, while doing well, was not getting the same attention. These days, even as TD is the biggest Canadian bank by assets, it's relatively small when it comes to lending to large companies. As National Bank Financial analyst Peter Routledge pointed out in a report calling on the bank to get bigger in wholesale, it has the biggest balance sheet and the second-smallest wholesale lending portfolio. He'd like to see the bank address that.

"Ed's focus was on building the retail platform, and that's done, and Bharat now has the blessings and curse of Ed's legacy," Mr. Routledge said.

Lending more in the wholesale business won't do it alone, but it will be a start.

Deposits are the best, cheapest funding for loans. The last big bank that TD bought in the U.S. came with a surfeit of deposits. TD has spent the intervening years adding loans. It bought Chrysler Financial, for example. It still doesn't have enough, and it needs more loans to optimize the returns on all those deposits.

More wholesale lending to big companies would be a logical next step. For one thing, it's easy to add scale when the loans you are making are measured in millions, not thousands. And then, once you are lending to companies, it makes sense to be able to offer them ancillary services such as merger advice and securities underwriting.

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The argument for doing that lending in the U.S. goes a step further. TD knows the market. Mr. Masrani ran the bank's U.S. operations for many years. He knows the business climate. Also, the U.S. economy is growing faster than Canada's. A lot of TD's deposit base is in U.S. dollars in the U.S. And there's more room to grow for TD on the wholesale side. Not to mention that U.S. regulators would prefer to see U.S. deposits loaned to U.S. customers.

There are signs TD is setting up for such a shift. In Toronto last week, it reshuffled management in investment banking in what was billed as a way to increase the business's capacity. And in May, TD moved senior executive Glenn Gibson from Toronto to New York. It also made him global head of credit origination – i.e making big loans.

It won't likely be an RBC-style build-out, but there seems to be little doubt that TD is no longer content to be on the small side in the key business of wholesale lending.

The risk for shareholders is that TD may not apply the same risk standards in the U.S. as in Canada, but Mr. Routledge doesn't think that will be a big issue. Mr. Masrani's job for a long time was to be Mr. Clark's bad-guy when it came time to say "no" to TD bankers wanting to make loans that didn't fit strategy and risk tolerance, Mr. Routledge said.

"He shares Ed's risk sensibility."

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