Toronto-Dominion: Positioned As North America's Bank

Aug. 5.14 | About: Toronto-Dominion Bank (TD)


An overview of TD's successful acquisition strategy in America and Canadian history.

Unlike any other bank, TD offers its shareholders exposure to the entire North American banking industry.

Credit Suisse has increased their target price for TD.

The Canadian banking industry is widely accepted to be one of the safest banking networks in the world. It is characterized into two general categories, which are the "large five" and the smaller second-tier banks. The large five include Royal Bank of Canada (NYSE:RY), Toronto-Dominion Bank (NYSE:TD), The Bank of Nova Scotia (NYSE:BNS), Bank of Montreal (NYSE:BMO) and Canadian Imperial Bank of Commerce (NYSE:CM). The second or smaller-tier banks include companies such as National Bank of Canada (OTCPK:NTIOF), Canadian Western Bank (OTCPK:CBWBF) and Laurentian Bank of Canada (OTCPK:LRCDF). Unlike the tier-two Canadian banks, the large five are much more than Canadian banks, and would be better described as international financial conglomerates with a strong rooted foundation in the Canadian banking industry.

The Canadian, banks supported by a historically strong Canadian dollar, increasing profits, cash-rich and with the desire to expand outside of Canada, have spent the last decade on a wild shopping spree. Let's focus specifically on Toronto-Dominion Bank of Canada, which is commonly referred to as TD Bank or simply TD. TD has spent the last decade assisting the consolidation of the American banking industry, and has emerged as a household brand in America. This is significant to observe, as TD is neither positioned more as a Canadian bank or an American bank; it would be best classified as a North American Bank.

Today in Canada, TD is the second-largest bank by market capitalization and based on assets. It offers a range of financial services and products to greater than 10 million Canadian customers through more than 1,200 branches, and is armed with 2,600 Green Machine ABMs. The current-day TD Bank dates back to 2000, when TD acquired Canada Trust. In recent years, TD has been moving away from the Canada Trust brand to simply TD Bank. TD Bank is the brand name in the USA, which indicates a shift to consolidate brands throughout North America possibly towards one TD Bank, N.A.

South of the Canadian border, TD Bank has swept America off its feet. TD strategically executed on a growth model through acquisition, which is unparalleled by any other executed plan by a Canadian financial institution. Here are key acquisitions completed by TD in America, specifically related to retail and business assets:

  • In 2004, TD Bank became the majority owner of the remaining Banknorth Group, and renamed it to "TD Banknorth, N.A."
  • In July 2005, Hudson United Bank, based in Mahwah, New Jersey, became a target for TD Bank and was absorbed.
  • In 2006, TD completed the takeover of Financial Services Corp.
  • In 2007, TD Bank and Commerce Bancorp of New Jersey announced that they had signed a definitive agreement for TD Bank to acquire Commerce Bank in a stock and cash transaction. The deal was valued at $8.5 billion.
  • In 2010, TD Bank bought The South Financial Group located in South Carolina.
  • In late 2010, TD Bank moved into the automotive finance market with the purchase of Chrysler Financial, which was later renamed to "TD Auto Finance."

Flashforward a decade, and TD Bank has grown to become one of the 13 largest banks in the US, servicing more than 8 million customers through a network of 1,300 branches which are geographically located throughout the Northeast, Mid-Atlantic, Metro D.C., the Carolinas and Florida. Although retail banking is a smaller portion of a bank's overall appearance, if we compare TD Canada to TD America, we will quickly see that TD's retail banking operations are closely in line with each other, specifically regarding customers served and the number of retail branches. Collectively, TD boasts the sixth-largest bank branch network in North America.

TD Offers Shareholders the Best of Both Worlds

A position in TD gives shareholders direct exposure to the mature, stable and profitable Canadian banking business, with an upside to growth in the US operations. TD's American shopping spree is barely a decade old, with some major takeovers completed less than 5 years ago. It would be expected that such significant purchases would take a decade to fully integrate, plus a rebound in the US economy would further deliver value to TD's American operations. Simply stated, no other bank gives shareholders the best of both Canadian and American retail and business banking with still so much growth opportunity.

For long-term and income investors, TD currently offers its shareholders a rock-steady dividend, providing greater than 3.5% dividend yield payable on a quarterly basis. As for shares in TD, Credit Suisse analyst Kevin Choquette reported an increase for Canadian banks, including TD. He increased the target price to CDN$65/share, which represents over 10% growth from its current trading levels.

Mr. Choquette says:

"We expect superior shareholder returns for the banks to continue, based on steady gradual P/E multiple expansion, high dividend yields, high and sustainable profitability, high capital generation, solid earnings growth despite the low interest rate environment, and slow credit growth as well as significant positive earnings leverage to higher interest rates. We see reasonable earnings growth for the bank group in the 8-per-cent to 10-per-cent range... We believe net interest margins have stabilized."

Disclosure: The author is long TD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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