Hot, cold or lukewarm? Taking the temperature of the big banks’ appetite for acquisitions
Strong economic growth and rising interest rates have helped Canada’s big banks to record profits but, when it comes to expanding operations through M&A, not all are on the same page.
Capital position, strategic direction and the price tag of potential targets are all factors that can affect a bank’s appetite for acquisitions.
The Financial Post has sifted through the latest public comments of their executives and assigned a temperature-related rating to reflect how likely they are to make a significant acquisition.
BANK OF MONTREAL: LUKEWARM
The watchword around BMO is “disciplined” — but it may still have eyes for an acquisition related to U.S. personal and commercial banking or wealth management.
“Those are two areas in particular where we’re looking to grow the bank,” CEO Darryl White said last month.
Indeed, one report from June seemed to highlight BMO’s interest in growing its business in the U.S., as Crain’s Chicago Business reported that BMO Harris Bank had made a higher offer for a local bank, but lost out to another lender.
BMO has pulled off at least one deal of note this year, paying an undisclosed sum for New York-based broker-dealer KGS -Alpha Capital Markets. KGS specializes in assetand mortgage-backed securities for institutional investors.
White said earlier this month that his view on growing the bank “inorganically” hadn’t changed.
“We do have capital and flexibility to act should something come along that falls into all those slots,” he said. “But a lot of the things we look at just don’t, for one reason or another.”
BANK OF NOVA SCOTIA: COLD
If anything, Scotiabank may be squarely in the “sell” column.
That’s because the lender has already been on a bit of shopping spree this year, including its deal to buy doctor-focused wealth firm MD Financial Management for approximately $2.6 billion. This was preceded by news in February that Scotiabank was paying about $950 million for investment manager Jarislowsky Fraser.
There have also been a number of moves intended to grow Scotiabank’s presence in Latin America, such as its successful $2.9-billion bid for a majority stake in Chilean retail lender BBVA Chile.
After these additions, the lender will be “hyper-focused on integration and execution” over the next year or so, according to comments by Scotiabank president and chief executive Brian Porter on Sept. 5.
The CEO mentioned that Scotiabank was focused on exiting some of its non-core businesses.
CANADIAN IMPERIAL BANK OF COMMERCE: COOL
CIBC looks to be in a holding pattern of sorts.
After its US$5-billion pick-up of Chicago-based PrivateBancorp Inc. last year, it sounds as if it would prefer instead to grow what it owns.
There may be, however, a few smaller-sized deals out there for CIBC. Chief executive Victor Dodig allowed for that possibility during the bank’s third-quarter conference call. But, Dodig stressed, “it’s all about organic growth” at the moment, in addition to investing in the bank’s Canadian business and growing its dividend.
“It’s all governed by the practical reality of, we just invested a significant amount in a very important institution that has become part of CIBC, that continues to grow,” he said at the Scotiabank conference. “When it comes to a large transaction, that’s not really what we’re considering in the short to medium term. Can I be any clearer?”
ROYAL BANK OF CANADA: TEPID
For Royal Bank, any acquisition may come down to whether the price is right.
It has not done a big one, really, since its approximately US$5.4billion acquisition of Los Angelesbased City National Bank in 2015.
Asked this month, CEO Dave McKay said that they would “certainly ” look at another acquisition. “We’re studying our potential partners. We’re building playbooks.”
RBC, McKay noted, remains disciplined. “If something corrects, or we find a new synergy that we didn’t think of before, and the two worlds align, and the bank is for sale, we may execute a transaction,” he said. “But there are no plans now. The asset prices are at a level where it just doesn’t make sense.”
RBC also appears to be playing it safe in the event of any economic downturn. On Sept. 13, the bank’s chief financial officer, Rod Bolger, told the Barclays Global Financial Services Conference that “it wouldn’t be bad to have some extra capital going into a recession.”
TORONTO-DOMINION BANK: WARM
TD is sitting on perhaps the most considerable pile of capital.
At 11.7 per cent, it ended the third quarter ahead of its peers when it came to the CET1 ratio — a measure of a lender’s capital strength.
What’s more, TD CEO Bharat Masrani has been saying that his bank is interested in making an acquisition south of the border.
“TD continues to look at acquisition opportunities in the U.S. South-East and on the credit card partnership front; however, timing here is very much unknown with the narrative on this front unchanged over the past couple of years,” noted Eight Capital analyst Steve Theriault.
Masrani, however, has been consistent in describing how his bank will deploy capital, ensuring its core strategies are adequately funded first before the lender goes looking for M&A opportunities.
TD also recently decided to put some of its capital to work, announcing in July that it had agreed to buy Saskatchewan-based institutional asset manager Greystone Managed Investments Inc. for $792 million in cash and stock.
TD Bank’s U.S. retail head noted that “it’s been seven or eight years since we’ve done a bank deal.”
“If I say how we would look at this going forward from a bank perspective, we should assume, you should assume, that we look at everything that might be available on the market as we should,” added Greg Braca. “But obviously, it’s got to check a lot of boxes for us.”