conditions in the US, Canada’s TD Bank Financial Group remains
gung-ho about its US retail banking opportunities following the
$8.5 billion acquisition of Commerce Bank last October. TD
Commerce, as the new US unit is called, is still aiming to be
America’s Most Convenient Bank.
Six months after paying $8.5 billion for the retail-savvy Commerce
Bank franchise in the US (see RBI 580), Toronto-Dominion
Bank CEO Ed Clark has unveiled his consolidated North American
retail banking platform, hinting at an aggressive strategy that
will leverage the new US division, TD Commerce, to expand the
bank’s traditional power in insurance and wealth management to a US
market in the teeth of a savage recession.
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Clark is not only standing by the gamble – he is confident that the
strength gained through the acquisition will allow what he called
“the first true North American bank” to grow despite the sour
economy. “When we step back and look at the earnings we expect from
our US banking operations in 2009, we are pleased with where we’ve
landed. We’re still finalising our numbers but all in we’ve got a
premium US retail franchise for about 14 to 15 times
earnings.”
Clark even revised upward group estimated earnings for its US
personal and commercial banking segment from $700 million to $750
million, excluding restructuring charges. “We are expecting to do a
little better in 2008, setting a new target of at least C$750
million [$740 million] in earnings. And even though visibility for
2009 is much less clear, we are reiterating our expectation for a
minimum of C$1.2 billion in earnings in 2009, despite the higher
loan losses we expect from a weaker US economy and narrower deposit
margins.
“These are not incompatible goals – we can grow while managing the
balance sheet. We still believe that 2008 will be a pause year
overall,” he said. He explained that TD’s overall business can be
divided into those parts affected by the economic slowdown and
those that are not. “The wholesale business has slowed, and the
Canadian wealth management business has slowed, but the unaffected
business lines, including TD Canada Trust and the retail operation,
are doing fine, and TD Commerce is as well.”
Clark said he’s pleased by what he sees in the loan portfolio.
“Both TD Banknorth and Commerce are conservative lenders,” he said.
“We’re not saying we can operate in the US during a recession and
not be impacted. Obviously we will be, as will our commercial
operations if the slowdown in the US moves into Canada.”
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By GlobalDataMany of TD’s competitors that have been bruised by the current
crisis are scaling back their investment banking operations in
favour of retail, or consumer, banking, but few can match TD’s
geographic reach or diversification. With Commerce, TD now has more
than 2,100 branches, the seventh-largest network in North
America.
Commerce’s red logo is turning green and white, and the Canadian
company plans to launch a multimillion-dollar ad campaign this year
in both companies’ markets, from Maine to Florida. Commerce’s tag
line, ‘America’s Most Convenient Bank’, will be retained to signal
to employees and customers that TD Banknorth plans to follow the
Commerce strategy, rather than the other way around.
Outperforming its peers
Bharat Masrani, TD Banknorth’s president and CEO, said the
combination would allow TD Banknorth, which has assets of about $58
billion, to keep improving. He said: “Commerce has outperformed its
peers and continues to take market share, particularly in our newer
immature stores. Year-over-year, deposits are up 8.5 percent,
including 3 percent in our mature stores and up 36 percent in our
immature stores – those opened since 2004.”
He said that the company is “not chasing deposits” and was even
looking at running off certain high price deposits which are purely
rate sensitive. “It has nothing to do with building a franchise.
So, I feel comfortable in the markets we are in that we are getting
the type of growth that we are after. It is more core deposit
growth”, he stressed.
“We have seen deposit margins continue to narrow in this
environment, given pressure on deposit pricing from larger banks,
which have turned to retail deposits as a source of funding to
replace the loss of wholesale funding. We are seeing solid growth,
with commercial loans up 16 percent year-over-year and consumer
loans up 12 percent.”
Many of the small touches that made Commerce a retail banking
phenomenon will be retained, including expanded hours, with some
branches adopting Sunday hours. The current Commerce branches will
even continue to hand out free lollipops and dog treats. TD
Banknorth customers can look forward to longer hours and a wider
range of ATMs from Maine to Florida. Clark said the bank plans to
add 25-30 branches each year. We are committed to continuing to wow
our customers with unparalleled convenience and legendary customer
service, as Commerce has done and as we do in Canada at TD Canada
Trust,” said Masrani.
The first benefits of the deal are already being felt by customers:
starting 10 April, customers of both banks could access their cash
without incurring fees at any of the companies’ combined 2,700 ATMs
in the US and more than 2,500 ATMs at TD Canada Trust locations
throughout Canada.
Clark concluded: “As for the concerns about integration, people
have to understand we bought Commerce to get the Commerce model. We
understand their model because it is very similar to the TD model.
We are true believers in convenience and service in retail banking.
It’s terrific for customers, it’s terrific for employees and it’s
terrific for shareholders. And when you own that brand position,
the benefits are cumulative.”
