* Canadian banks bullish on U.S. prospects
* TD CFO says U.S. business confidence picking up
* Softer regulation, higher interest rates on cards
* Rising valuations making acquisitions difficult
* CIBC facing challenge to get into U.S. market
By Matt Scuffham
TORONTO, March 2 Canada's banks are already
seeing the benefits of pro-growth policies pursued by President
Trump's new U.S. administration, executives said, with
expectations of tax cuts, lighter regulation and fiscal stimulus
boosting market confidence.
Shares in Canadian banks, which have substantial operations
in the United States, have soared since Trump's election victory
on Nov. 8., boosted by hopes of higher U.S. interest rates on
Trump policies like a $1 trillion infrastructure spending plan.
Toronto-Dominion Bank, Canada's second biggest
lender which also has a major U.S. presence, on Thursday
reported better-than-expected earnings in the first quarter to
Jan. 31 helped by a strong U.S. performance.
TD's Chief Financial Officer Riaz Ahmed said in an interview
that activity in equity and bond markets had "picked up
considerably" since the U.S. election while business confidence
in the United States was also improving.
"There is momentum right now and companies are taking
advantage, to look at acquisitions and do financings. It feels
like business confidence is strong," said Ahmed, adding that
expectations around interest rates, regulations and taxes "all
bode well for the (banking) industry".
TD and Bank of Montreal have the biggest exposure
to the United States among Canadian banks, with about a quarter
of their profits coming from that market.
Shares in TD, which has around 1,300 branches in the United
States, are up 15 percent since November with BMO shares up 23
BMO reported forecast-busting results on Tuesday beating
market expectations by the widest margin achieved by any
Canadian bank this quarter, helped by a strong performance by
its retail banking, wealth management and capital markets
business in the United States.
"We see good growth opportunities across those businesses in
the U.S.", Chief Financial Officer Tom Flynn said in an
U.S. GETS EXPENSIVE
Analysts said that, although Canadian banks' domestic
businesses performed reasonably well during the quarter, their
U.S. growth was likely to outperform domestic growth in the
"The expectation for earnings growth in the U.S. is stronger
than it is in Canada, based on economic activity and rising
interest rate forecasts," said Barclays analyst John Aiken,
adding that investors were showing a preference for banks with
greater exposure outside of Canada.
Still, the rising valuations of U.S. banking stocks since
the election presents a challenge to banks looking to enter the
U.S. market or expand their existing operations through
Canada's fifth biggest lender CIBC faces a struggle
to complete its planned $2.9 billion takeover of Chicago-based
PrivateBancorp Inc and end what some analysts see as an
over-reliance on its home market.
PrivateBancorp canceled a shareholder vote on the deal in
December after some investors indicated they would reject the
Many PrivateBancorp investors had expected CIBC would come
back with a higher offer when it reported results on Thursday
but, for now at least, the Canadian bank is holding off on
improving its offer, leaving the deal in limbo. The two banks
have until June to reach a deal.
Edward Jones analyst Jim Shanahan expected the deal to
eventually go through but was concerned CIBC could end up
"I think they'll plough ahead stubbornly and get this deal
done because there aren't many other opportunities out there,"
Royal Bank of Canada, which acquired Los
Angeles-based City National for $5.4 billion in 2015, is also
looking to expand in other U.S. cities but Chief Executive Dave
McKay said valuations were prohibitive.
"You look at the prices of U.S. banks and the ability to
generate synergies and return on capital remains challenging at
best," he said.
(Additional reporting by Vishaka George in Bengaluru; Editing
by Andrew Hay)