Canadian Banks On the Move Buying U.S. Banks While Bailout Recipient AIG Sells Canadian Life Insurance Business to Bank of Montreal (“Picking over the Carcasses”)

“…Canadian subprime holdings amount to less than 5% of mortgages, compared with 20% in the U.S….”

~~By InsightAnalytical-GRL

A couple of days ago we featured a couple of stories about the Canadian banking system.  See: The SCANNER–International/Political Edition, 2/24/09 (Which Deficit is Obama “Halving”?; Canada Rubs U.S. Nose into Its Stable Banking System; GM/Chrysler Beg for Bailout Help in Canada, Too; Half of Foreign Criminals in Canada Are Fleeing to the U.S. [???]).  Here’s some more background on how Canadian banks are taking advantage of the current financial mess here in the States.

First, here’s some information on the status of the Canadian banking system which was part of a report issued back in October 2008 by the World Economic Forum. Read the “grading system” and you’ll understand completely why the U.S. has fallen to 40th place.

Canadian banks ranked soundest in the world

U.S. has fallen to No. 40 in World Economic Forum list

Canada has the world’s soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as a financial crisis and bank failures shake world markets.

Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru, after its government pledged the equivalent of $97 billion Cdn this week to bolster bank balance sheets.

The United States, where some of Wall Street’s biggest financial names have collapsed in recent weeks, rated only 40th, just behind Germany, at 39th, and smaller states such as Barbados, Estonia and even Namibia, in southern Africa.

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Over the summer, stories began surfacing about how Canadian banks were gearing up for an acquisition spree.

From June 13, 2008, this report from Reuters:

Canadian banks seen hitting U.S. acquisition trail

SNIP

“I think they’re in a position to really pick over the carcasses,” said Bushell, who runs the C$4.2 billion CI Signature Select Canadian fund.

Dennis Gartman, the Virginia-based author of investment newsletter The Gartman Letter, said at the same conference that Canadian banks would be “in the driver’s seat” for the next decade.

“They’re going to come around buying everything in the United States … they’re in great condition.”

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The story goes on to report that Royal Bank of Canada had already acquired Alabama National Bancorp earlier in 2008 and how “Toronto-Dominion Bank just swallowed New Jersey-based Commerce Bank.”  Other big Canadian players were staying on the sidelines at that point.

By August 2008, more transactions were brewing:

Canadian banks may profit from U.S. banks’ pain

Doug Alexander and Sean B. Pasternak, Bloomberg Published: Monday, August 25, 2008

SNIP

Lenders including Bank of Nova Scotia and Toronto-Dominion Bank spent a record US$10-billion on U.S.-owned assets over the past year. Royal Bank of Canada and Bank of Montreal may also continue shopping, according to CIBC World Markets analyst Darko Mihelic, with potential targets including Regions Financial Corp. and Huntington Bancshares Inc.

Toronto-Dominion, based in Toronto, spent about US$7.1-billion in March for Commerce Bancorp Inc., New Jersey’s biggest locally based lender, setting a record for foreign bank purchases by Canadian companies. Scotiabank, also based in Toronto, is acquiring the Canadian unit of E*Trade Financial Corp. for US$442-million and has said it may buy more U.S. assets.

One reason for the gap is that Canadian subprime holdings amount to less than 5% of mortgages, compared with 20% in the U.S., according to the Canadian Association of Accredited Mortgage Professionals.

Royal Bank targets may include Regions Financial, the biggest bank based in Alabama, and BB&T Corp. in North Carolina, while Bank of Montreal could pursue firms such as Green Bay-based Associated Banc-Corp. and Huntington Bancshares Inc. of Columbus, Ohio, Mr. Mihelic said. Any of these targets would represent record takeovers for the two Canadian banks.

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Again, get that amazing comparison??  “…Canadian subprime holdings amount to less than 5% of mortgages, compared with 20% in the U.S….”

That sums it all up in a nutshell.

By September 2008, Prime Minister Stephen Harper was on the record, declaring:

Harper says no bailout for Canadian banks similar to U.S. plan

By THE CANADIAN PRESS

2008-09-19

SNIP

Harper said Friday the Canadian financial system is very strong and the balance sheets of the banks and insurance companies are solid enough that they don’t need any financial aid.

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Then, on January 9 of this year, there was this story:

Canadian banks to be patient in the U.S.

Senior executives from the Royal Bank of Canada, Toronto-Dominion Bank and Bank of Montreal said at an investor conference in Toronto that they will be cautious and patient, though they added they will be on the lookout for small acquisitions, according to press reports.

“We’re looking at opportunities as a result of the turmoil to add to our existing franchises in a sensible way where we can take advantage of them,” Royal Bank president and CEO Gordon Nixon was quoted by Reuters as saying. “But in terms of significant dramatic transformational acquisitions, whether it be the U.S., Europe or Asia, we just don’t believe in this environment that it’s the appropriate time to be aggressively deploying capital.”

All three banks already have a beachhead in the United States:

• Royal Bank, the largest Canadian bank, already owns the RBC Centura banking operation in the Southeast.
• Toronto-Dominion operates TD Bank on the East Coast.
• Bank of Montreal, the No. 4 Canadian bank, is the parent of Harris Bank in the Midwest.

The Globe and Mail added that TD chief executive Ed Clark said the Canadian banks have increased their capital and taken government funds because the market expects them to do it. But he also added the banks don’t need it and will emerge from the recession extremely well capitalized. “Canada will emerge, as long as we don’t do anything stupid, as the only country in the world where the banks didn’t need the government help,” he was quoted by the Globe as saying. It is an opportunity to redefine Canadian banking, and the country, “to say, ‘somehow you guys did it right,'” Clark said. “And so I think that’s worth fighting hard for.”

So apparently some government money is going to Canadian banks, but not for the reasons banks in the U.S. are receiving government money. (But don’t ask me the details of what THAT’s all about…)

A few days later, an interesting deal was reported involving AIG, one of the first companies to get U.S. bailout funds in September 2008, just after the collapse of Lehman Brothers and the government takeover of Freddie Mac and Fannie Mae and the sale of Merrill Lynch to Bank of America. To refresh your memory about these 10 days of financial hell, see this article from the Washington Post, dated September 16, 2008 : U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up/Emergency Loan Effectively Gives Government Control of Insurer; Historic Move Would Cap 10 Days That Reshaped U.S. Finance

The London Free Press Banks in buying mood ACQUISITIONS: With plenty of capital, Canadian banks are finding bargains Wed, January 14, 2009
By GARY NORRIS, THE CANADIAN PRESS

TORONTO — Canada’s big banks are sitting on plump capital cushions, waiting for healthy assets of distressed foreigners to fall into their laps.

In what could herald a series of deals, Bank of Montreal is paying $375 million for the Canadian life insurance business of American International Group Inc.

The cash transaction comes as AIG, once the world’s biggest insurer, restructures following a US$150-billion bailout from the U.S. government after its near-death.

Last week, TD Ameritrade Holding Corp., a U.S.-based brokerage owned 40 per cent by Toronto-Dominion Bank, agreed to buy online operator Thinkorswim Group for US$606 million. It’s paying about US$8.70 a share for Thinkorswim shares valued at US$16 a year ago.

BMO said yesterday AIG Life of Canada, bringing 300 employees and 400,000 customers, will add to the bank’s earnings within a year, expanding its array of investment, financial planning and insurance products.

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At the rate things are going, Canada will be moving in to the U.S. banking sector bigtime.  Get ready to speak “Canadian” when you go into a bank to cash a check!  And it may be sooner than you think!

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Click here for an overview on the “Big Five Banks” in Canada.