TD to build U.S. business brick by brick, after First Horizon setback

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TORONTO (Reuters) – Canada’s no.2 lender TD Bank Group (TD.TO) will push ahead with its U.S. expansion by focusing on organic growth, after its M&A-led strategy in the world’s biggest banking market suffered a setback this month, a top official told Reuters on Thursday.

TD has made U.S. growth a key priority as it deals with a saturated market at home and had pinned its hopes on $13.4 billion bid for regional lender First Horizon (FHN.N), but that was scrapped after hitting regulatory hurdles.

With about $18 billion in excess capital, it now plans to focus on opening branches and building its wealth business in the U.S., Chief Financial Officer Kelvin Tran said in the first comments since the First Horizon deal was pulled.

“In the U.S., we are still a relatively young bank. We have a lot of white spaces there,” Tran said.

“We continue to make referrals to our wealth business. That’s still a new business in the U.S. … So lots of opportunities still there in the U.S.,” he added.

The bank has not ruled out other acquisitions.

“When we look at deployment of capital, it’s about what we can invest to drive organic growth, we look at whether there are opportunities for M&A … and then also opportunities to return capital to shareholders,” Tran told Reuters.

TD announced plans to buy back 30 million shares along with its quarterly earnings that missed expectations.

The uncertainty of the First Horizon deal has weighed on TD shares, which are down more than 7% so far this year, compared with a 3.6% drop in TSX’s banks sub-index (.GSPTXBA).

Some shareholders are willing to be patient as TD seeks to grow its U.S. business.

Anthony Visano, a portfolio manager at Kingwest, a long-term TD investor, said the U.S. expansion strategy makes sense, but TD needs to shift towards wealth management.

“So, do they build or do they buy? I think they can do both in parallel. 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 on Thursday the bank plans to open 150 new stores by 2027 and double wealth adviser hiring. That includes opening 18 stores in the U.S. this year, on top of the 1,100 it operates in 16 U.S. states and its 12% stake in Charles Schwab.

It has already opened five new branches, including in south Florida, Atlanta and North Carolina – areas considered to be First Horizon’s turf – while also looking at the U.S. northeast.

“Think Boston, Philly, New York, where we think there are expanding communities, growing communities where we’ll lean into … But the Southeast is going to be a very important part of the overall equation,” Leo Salom, the head of TD’s U.S. Retail business said.

The bank earned about 40% of its second-quarter adjusted net income from its retail business in the United States, where TD is the eighth-biggest lender, as did its Canadian rival Bank of Montreal (BMO.TO), which acquired San Francisco-based Bank of the West.

Some analysts said TD should rethink its U.S. M&A strategy.

“TD should revisit the idea of whether or not they should be pursuing aggressive growth in United States banking through acquisitions,” Veritas analyst Nigel D’Souza said.

“My argument is that they should deploy excess capital to grow their wealth management and capital markets franchises.”

Image by: REUTERS/Chris Helgren

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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