Canada’s second-largest lender TD Bank Group is continuing its expansion in the US by focusing on organic growth after its M&A strategy in the world’s largest banking market suffered a setback this month, a top official told Reuters on Thursday.
TD has made growth in the US a top priority as the domestic market is saturated. The company had pinned its hopes on a $13.4 billion bid for regional lender First Horizon, but that bid was scrapped after it ran into legal hurdles.
With about $18 billion in excess capital, the company now plans to focus on opening branches and building its asset management business in the US, Chief Financial Officer Kelvin Tran said in his first comment since the deal with First Horizon was withdrawn. .
“In the US, we are still a relatively young bank. We have a lot of white spots there,” says Tran.
“We continue to refer to our equity business. That’s still a new business in the US… So there’s still a lot of opportunity in the US,” he added.
The bank has not ruled out other acquisitions.
“When we look at the deployment of capital, it’s about what we can invest to drive organic growth, we’re looking at M&A opportunities… and then also opportunities to return capital to shareholders,” Tran told Reuters.
TD announced plans to buy back 30 million shares along with quarterly earnings that fell short of expectations.
Uncertainty over the First Horizon deal has weighed on TD stocks, which are down more than 7% year-to-date compared to a 3.6% decline in the TSX’s banking sub-index.
Some shareholders are willing to be patient as TD tries to expand its US operations.
Anthony Visano, a portfolio manager at Kingwest, a long-term investor in TD, said the US expansion strategy makes sense, but TD needs to switch to asset management.
“So, do they build or do they buy? I think they can do both at the same time. They can build locations and they can acquire the other pieces that are missing from the platform,” Visano said.
OPENING NEW BRANCHES
Masrani told investors Thursday that the bank plans to open 150 new stores by 2027 and double its hiring of wealth advisers. That includes opening 18 stores in the US this year, in addition to the bank’s 1,100 in 16 US states and its 12% stake in Charles Schwab.
It has already opened five new locations, including in South Florida, Atlanta and North Carolina — areas considered First Horizon’s territory — while also eyeing the American Northeast.
“Think of Boston, Philly, New York, where we think there are growing communities where we will settle…. But the Southeast is going to be a very important part of the overall equation,” said Leo Salom, head of TD’s US retail operations .
The bank derived about 40% of its second-quarter adjusted net income from its retail operations in the United States, where TD is the eighth largest lender, just like its Canadian rival Bank of Montreal, which overtakes the San Francisco-based Bank of the United States. West took over.
Some analysts said TD needs to rethink its US M&A strategy.
“TD needs to rethink whether or not it should pursue aggressive growth in the US banking industry through acquisitions,” said Veritas analyst Nigel D’Souza.
“My argument is that they need to deploy excess capital to grow their asset management and capital markets franchises.” (Reporting by Nivedita Balu Additional reporting by Maiya Keidan Editing by Denny Thomas and Sonali Paul)