Canadian banks spreading global footprint

By Cameron French

TORONTO (BestGrowthStock) – After escaping the financial crisis in better shape than most of their international peers, Canada’s big banks are pushing to boost their global market presence through a flurry of deals that looks set to continue.

The banks have been helped by the strength of the Canadian dollar and a glut of cheap targets, as lenders hurt by the financial crisis seek to rebuild balance sheets.

“(Canada’s banks) have come out of this financial downturn in very strong shape and able to maybe a little more opportunistic than a lot of the U.S. banks or European banks, whose capital bases are still being repaired,” said John MacKinlay, lead advisor in banking at PricewaterhouseCoopers.

Most of Canada’s big lenders have had some sort of international expansion strategy for some years, but the frequency of deals picked up after early September, when Canada’s banking regulator signaled the banks were free to resume large capital deployments.

Royal Bank of Canada (RY.TO: ), Canada’s biggest, said this week it had bought the Hong Kong wealth management assets of Fortis Bank (FORTS.IS: ). That followed a deal last month to buy British fund manager BlueBay Asset Management (BBAY.L: ) for about $1.5 billion.

The bank received primary dealer status in France and Germany in late October, which should help it expand its European wholesale banking reach.

Bank of Nova Scotia (BNS.TO: ), the country’s No. 3 bank, recently bought South America banking operations from both Commerzbank AG (CBKG.DE: ) and Royal Bank of Scotland (RBS.L: ), and said last week it would establish a fixed-income rates desk in London, after recently being named a UK primary dealer.

No. 2 lender Toronto-Dominion Bank (TD.TO: ) has signaled it wants to continue to add to its growing U.S. retail bank.

Bank of Montreal (BMO.TO: ) last month became the first Canadian bank to be incorporated in China. The bank has said it is seeking acquisitions in China and in the United States, through its Chicago-based retail and wholesale bank presence.

Most recent moves have been small, perhaps due to lingering uncertainty over stricter capital rules that global regulators will soon implement. But some uncertainty could disappear at this week’s G20 meeting in Seoul, where some of the rules are expected to be finalized.

“I’m not entirely surprised at the volume of deals,” said Juliette John, portfolio manager at Bissett Investment Management in Calgary. “They’re taking advantage of some of the market heft that they now have.”


While the banks’ strength is rooted in their domestic retail bank networks, the moves by Royal, Scotiabank, and BMO show a willingness to bulk up on foreign wholesale banking assets, which promise more growth, but also more risk.

“There’s a risk that the earnings become more volatile, no question about that,” said John. “The question becomes how much do you want to pay for a more volatile earnings stream.”

One analyst said the banks are offsetting the higher risk of market-related results with geographical diversity, which spreads risk out.

The analyst, who is not permitted to speak publicly on merger-related issues, said the recent moves show the banks are serious about leveraging their advantage for growth.

“I think they’re being opportunistic… If you’re assuming the world’s not going to hell in a handbasket, they’re picking up some bargains.”

(Additional reporting by Pav Jordan; editing by Janet Guttsman)

Canadian banks spreading global footprint