Analysts expect a pickup in cross-border deals like the one announced Friday involving Bank of Montreal and Marshall & Ilsley Corp., but the wave will be flowing in only one direction.
While Canadian banks continue to view the United States as an opportunity for customer growth and portfolio diversification, a confluence of regulatory, market and capital considerations makes it unlikely that U.S. banks will shop for acquisitions in Canada anytime soon.
Canadian banks "have been much too aggressively protected by the Canadian government," said Tom Velk, an associate professor of economics at McGill University in Montreal. "You can open up here, but it's kind of a suitcase office or a skyscraper office where you're dealing with commercial clients only, and your capital requirements are heavy."
Even if Canada's relatively restrictive regulations were loosened, it is unlikely that U.S. banks could muscle in with a successful consumer offering.
"It's a very highly concentrated marketplace," said Louis Gagnon, a finance professor at Queen's University in Ontario. "There are very few opportunities for a U.S. bank to buy a small bank, grow it, and develop a consumer franchise. There's just no leg room here in Canada."
That's the main reason Canadian banks are looking south, where the market, while saturated, is ripe for consolidation and creating economies of scale. Canada, however, has entrusted its banking system to a handful of large institutions.
If U.S. banks wouldn't reap much from a chance to expand in Canada, Velk, who is from M&I's home state of Wisconsin, thinks at least one group would benefit: Canadian consumers.
Generally, Canadian banks "still aren't open on Saturdays, and their margins between the cost of capital and their lending rates for retail customers are wider than they would be in a more competitive environment," he said. An American invasion, unlikely as it is, "would force the Canadian banks to be much more aggressive in their behaviors," Velk said.
