United States entices big banks in Canada
OTTAWA: The Bank of Nova Scotia is sometimes praised for having a nearly perfect record with its investments in the United States. But it is the only one of Canada's five large banks that has largely avoided the American market.
Stephen Harper, the prime minister of Canada, is among the many Canadians who regularly remind the world that their country's banking system was left largely unscathed by the global recession and credit market collapse because of its regulation and prudent management.
Now several of the banks are taking advantage of their solid balance sheets as well as the current revamping and consolidation of the American banking system to again look south for expansion. Last week, the Toronto-Dominion Bank agreed to pay $6.3 billion for Chrysler Financial. And earlier this month the Bank of Montreal bought Marshall & Ilsley, a bank based in Milwaukee, for $4.1 billion.
Given the uneven success of previous forays south of the border, however, few investors expect much good to come of either deal.
"We don't think it's a great idea for Canadian banks to be expanding into the American market," said J. Bradley Smith, the head of research at Stonecap Securities in Toronto. "From a cultural perspective, we're very similar. But from a management perspective, the American market is not an easy threshold to cross."
Still, Canadian banks have few other options for expansion. "The banks simply have no choice," said Louis Gagnon, an associate professor of finance at Queen's University in Kingston, Ontario. "They have to go beyond our borders to grow and the only market that makes sense is the United States." In their home market, Canada's top five banks - the Royal Bank of Canada, the Toronto-Dominion Bank, the Bank of Nova Scotia, the Canadian Imperial Bank of Commerce and the Bank of Montreal - offer a complete range of banking, from retail to investment banking through a nationwide chain of branches. Changes in regulation have also allowed them to expand, on a limited basis, into insurance while most brokerage houses became bank subsidiaries.
That market dominance, and some regulatory restrictions, mean that competition from foreign-owned banks in Canada is limited. -PB News