As America's largest financial institutions falter, Toronto-Dominion Bank intends to grab market share here by accelerating branch openings, W. Edmund Clark, its chief executive officer, told American Banker on Wednesday.
"We happen to have a short period of dislocation here, where they're otherwise occupied, and we're going to take advantage of that by growing as fast as we can — probably organically and only with acquisitions when we get visibility on the economy," Clark said. "You want to grow like stink here if you can do it."
The $585 billion-asset company's U.S division, TD Bank, has 30 branches slated to open this year, and starting next year it aims to open 50 annually, he said.
Toronto-Dominion has been an aggressive acquirer in the United States, buying TD Banknorth Inc. in Portland, Maine, in 2005 and Commerce Bancorp Inc. in Cherry Hill, N.J., last year. The Commerce purchase nearly doubled Toronto-Dominion's size and gave it more branches in the United States than in Canada. TD Bank now has 1,100 branches and $114 billion of assets.
Clark also said building branches is contingent on finding sites, though his company is trying to renegotiate some deals as real estate values decline.
John Aiken, an analyst with Dundee Capital Markets, said Toronto-Dominion is well positioned to open 50 branches a year — possibly even more — in the United States, as it has already heavily written down goodwill in the risky securities portfolio acquired in the Commerce deal. That gives it a cushion its U.S. banking rivals do not have, he said, and its prospects for a federally assisted deal are dim, given the volatility in U.S. market.
Clark said Toronto-Dominion is wary about making any new acquisitions in the United States, since it is still busy absorbing Commerce. "We want to make sure the merger is totally buttoned down."
The company could be open to a federally assisted deal on the East Coast if the price were right, he said. He would steer clear of companies occupying a region where it is cheaper to open branches than to buy them.
"We really have no interest in going outside our core footprint," Clark said. "It would have to be something where the cost of building out that area is too expensive. If it wasn't a good deal — I can live without a deal."
Toronto-Dominion's foray into the United States has not been untouched by the crisis. Its net income in the first quarter of this fiscal year, which ended Jan. 31, fell 27% from a year earlier, to $567 million, as it set aside higher provisions to deal with bad loans in its U.S. consumer banking business. TD Bank also reported last month that it was sitting on $2 billion of unrealized losses in its investment portfolio.
However, the U.S. banking arm's net income rose 89%, to $195 million, as a result of the Commerce acquisition.
Brad Smith, an analyst with Blackmont Capital Inc., said Toronto-Dominion is making a risky — if strategically sound — growth play in this country. It has more than 60% of its shareholder equity tied up in its U.S. acquisitions, he said, and it could be in serious trouble if its investments here do not pan out. "It's a capital-intensive strategy, and it's risky, because it is a highly competitive market," Smith said.
However, Clark said his company is operating from a position of strength as it tackles the U.S. market.
"We have exited the structured product area. We haven't done the subprime lending. We haven't done the option ARMs. We haven't done all of the things that are causing the problems" in the U.S. banking industry, he said. "This quarter we earned $1.15 billion" in Canadian dollars, excluding securities and other charges, "and if you look at that and you look at all the banks in the U.S., and you translate that into U.S. dollars, you won't find any bank that earned that."
Clark said the Commerce integration is going "marvelously well."
TD Bank has actually benefited from a lawsuit filed by Commerce Bank and Trust Co. in Worcester, Mass., last year challenging plans to rename the U.S. operations TD Commerce Bank, he said. As a result of the suit, Toronto-Dominion was forced to brand the division TD Bank. Clark said the ruling makes it easier for the division to market itself as only one of three U.S. banks with a triple-A rating.
"[With] TD Commerce, you could have said: 'We're triple-rated, too,' but it's not as crisp as 'This is TD Bank. This is the triple-A rated bank — the best capitalized bank in the world,' " he said. "To be able to go to your customers and say that in this environment has been a tremendous help."
Toronto-Dominion is also on track to complete the integration of the Commerce and Banknorth systems by the fall, he said.
The U.S. division has enjoyed growth in commercial lending, he said, since small and midsize businesses are finding it difficult to get financing. The U.S. commercial loan portfolio grew 14% to 15% last year, he said. "We daily get people walking across the street who say, you know, either 'My bank won't fund me' or 'I'm worried that my bank won't fund me,' " Clark said. However, deposits have not been migrating from other banking companies to Toronto-Dominion, he said, and deposit competition remains an issue. "There's always someone who appears to be running out of money."
Clark was critical of the Treasury Department's Troubled Asset Relief Program, saying U.S. companies that took federal money may have been emboldened to make bad decisions like cutting dividends, conducting rights offerings or converting preferred shares to common shares. "What was wrong with the Tarp [money] was that money was cheap," he said. "You could actually make a case … some institutions did some things that now they look backwards and say, 'I wouldn't have done that had I hadn't had that cheap money.' " He also said the federal intervention in the banking system is starting to move in the right direction by putting the industry's capital burdens on the private sector, not the government.
Clark said he doubts that other foreign firms will pounce to take advantage of the turmoil in the U.S. market.
"If you take a look at the foreign banks, some of them have their own problems back home," he said. "I don't think they are going to go to their governments and say, 'How'd you like to pony up some more capital? I have a real neat idea in the U.S. right now.' "
