Canadian banks have fared relatively well during the financial crisis and global recession thanks to their prudent management and the country's tough regulations -- a fact any Canadian national will gladly tout, especially to an American audience.
But this also means those banks are accumulating substantial capital, and they don't have many good options for using it expand at home, The New York Times reported Monday. So they're looking abroad to expand their business, mostly south of the border to the U.S., where the banking system is currently consolidating and being revamped.
Enticing but Difficult
The Royal Bank of Canada (RY), the Toronto-Dominion Bank (TD), the Bank of Nova Scotia (BNS), the Canadian Imperial Bank of Commerce (CM) and the Bank of Montreal (BMO) dominate the Canadian market, offering a full range of banking, insurance and brokerage services. Regulatory restrictions mean competition from foreign-owned banks in Canada is limited, and local institutions face few takeover pressures because of laws that prohibit any entity from owning more than 20% of a chartered bank.
While the U.S. market is enticing, though, Canadian banks -- and Canadian companies in general -- have had limited success cracking it in the past. CIBC had the worst run in the U.S.: After Enron investors sued its American unit, the bank sold the bulk of it to Oppenheimer Holdings in 2007. RBC's Centura unit, TD's Banknorth, and Bank of Montreal's Harris Bank have all consistently underperformed relative to their parent companies' operations in Canada.
It seems, though, that the banks have little choice but to keep trying. Most recently, TD Bank agreed to buy Chrysler Financial from Cerberus for $6.3 billion, and Bank of Montreal bought M&I Bank for $4.1 billion. And this interest in adding U.S. operations may only grow.
Going against the grain, the Bank of Nova Scotia has avoided the U.S. and expanded instead in Latin America and China. The Times article notes that while those markets take longer to develop, and BNS has experienced some missteps, it has been more successful in its investments than its competitors.
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