TD has plenty of scope for Scottrade bid: analyst

TORON TO • Toronto-Dominion Bank could afford to inject about $1.5 billion into a bid by minorityowned TD Ameritrade for rival U.S. discount brokerage Scottrade Financial

Services Inc., while still maintaining an adequate regulatory capital cushion, according to analysts at CIBC Capital Markets.

Scottrade is on the block and, according to media reports, TD Ameritrade is one of the likely bidders for the privately held discount brokerage with an estimated price tag of US$4 billion. CIBC analyst Rob Sedran wrote a note to clients Thursday morning following a report that TD Bank and TD Ameritrade have submitted a joint bid for Scottrade.

The analyst said he believes the Canadian bank could maintain its closely watched CET1 capital ratio of 10 per cent while deploying as much as $1.5 billion to a joint bid, based on publicly available financial informa- tion. TD owns 42 per cent of Ameritrade and Sedran said he expects the Canadian bank would want to maintain its stake at that level in the event of a Scottrade transaction.

“Though we have no idea if TD will end up being involved in such a transaction, it would be strategically consistent for it to be involved,” Sedran wrote.

“The assets on the banking side could be easily absorbed while the direct brokerage is a business the bank knows well, is one in which it has a strong partner, and is one in which acquisitions can carry material expense synergies and earnings accretion.”

Spokespersons for TD and TD Ameritrade declined to comment.

“We don’t comment on rumour or speculation with respect to M&A,” Kim Hilly- er, a spokesperson for the TD Ameritrade, said in an emailed statement.

Bloomberg News reported in early October that Scottrade founder and CEO Rodger Riney had hired an adviser to help sell the firm for about US$4 billion. Riney’s 75-per-cent stake is valued at US$2.2 billion by the Bloomberg Billionaires Index, based on the midpoint between the company’s stated book value of US$1.8 billion and the potential US$4 billion sale price.

His ownership interest is based on disclosures to the U.S. Securities and Exchange Commission, the Federal Reserve and the Missouri Secretary of State that show the primary shareholders to be Riney family trusts he controls.