Canadian Banks May Buy SunTrust, Zions in ‘Fire Sale’

Canadian banks, involved in a record $15.9 billion of acquisitions last year, may target U.S. lenders such as SunTrust Banks Inc., Zions Bancorp and Regions Financial Corp. to expand abroad, analysts said.

SunTrust, Georgia’s biggest bank, would “fit the bill” for either Royal Bank of Canada or Toronto-Dominion Bank, which have consumer-banking operations in the U.S. Southeast, said Pri de Silva, an analyst at CreditSights Inc. in New York. Zions of Salt Lake City would fit the U.S. focus for Bank of Montreal, which last month agreed to buy Marshall & Ilsley Corp., doubling its U.S. deposit base.

“The regional banks, mid-sized banks and community banks are up for grabs,” de Silva said in a telephone interview. “The big five Canadian banks are well-positioned to expand their presence.”

Canada’s banks, ranked the world’s soundest for three straight years by the World Economic Forum, announced 21 deals last year in areas including Canada, the U.S. and the U.K., according to Bloomberg data. The previous record for Canadian banks was 20 deals valued at $14 billion in 2007.

“This is beginning to look to them like a fire sale,” said Michael Williams, dean of the Graduate School of Business for Touro College in New York. “With them being cash-rich and stable, they’re now in a position to look abroad.”

At the end of October, Canadian banks had about C$35 billion ($35 billion) in capital that could be used for acquisitions, according to Barclays Capital analyst John Aiken.

Increased Conservatism

Canada’s financial services superintendent Julie Dickson stated in September that after two years of waiting out the financial crisis, Canadian banks no longer need “increased conservatism” in managing their capital. The announcement preceded deals worth more than $13 billion by four of the country’s five main lenders.

Royal Bank, the country’s largest bank by assets, agreed in October to buy U.K. fixed-income money manager BlueBay Asset Management Plc for about $1.5 billion, the Toronto-based lender’s largest takeover in three years. That was followed by a C$2.3 billion agreement by Bank of Nova Scotia in November to acquire the shares in DundeeWealth Corp. it doesn’t already own.

Bank of Montreal was next, with an agreement last month to buy Wisconsin’s Marshall & Ilsley for $4.1 billion, the Toronto- based lender’s largest acquisition. The bank announced today an agreement to buy Hong Kong investment manager Lloyd George Management to expand in Asia. The price wasn’t disclosed.

On Strategy

Toronto-Dominion Bank agreed in December to buy Chrysler Financial Corp. from Cerberus Capital Management LP for $6.3 billion to enter the U.S. auto-lending market in its second- biggest takeover.

“Everything the banks did last year was on strategy,” said John MacKinlay, national financial services consulting leader for PricewaterhouseCoopers LLP in Toronto. “It’s fair to say these all make a lot of sense.”

Canadian banks are still shopping. Royal Bank has said it wants to expand its wealth-management operations globally.

“Most people would more likely say that they would sell rather than acquire something,” said Michael Goldberg, an analyst at Desjardins Securities in Toronto. “That may be the case, but strategically, there’s a lot of reason for them to make an acquisition in the States.”

Goldberg, who rates Royal Bank shares a “buy”, said the bank may look at BB&T Corp., North Carolina’s second-largest bank, SunTrust, or Regions Financial.

Buyer or Seller?

Analysts including Sumit Malhotra at Macquarie Capital Markets said Royal Bank could sell the U.S. consumer-bank franchise it established in 2001 with the purchase of Centura Banks Inc.

Royal Bank “in our view is a willing seller of their U.S. regional banking franchise while looking to build out their global wealth-management operations,” Malhotra wrote in a note to clients Jan. 6.

Royal Bank Chief Executive Officer Gordon Nixon said he’s “not sure” whether the bank is a buyer or seller in the U.S.

“That question I’ve been very unclear on,” Nixon said today at a conference sponsored by the lender’s RBC Capital Markets unit. “Not because we’ve been trying to be coy about it, but simply because at this point in the cycle we’re not sure exactly what we would like to do longer term.”

Bank Shares Rise

Zions spokesman James Abbott, SunTrust spokesman Michael McCoy, Regions Financial spokeswoman Evelyn Mitchell and BB&T spokeswoman Maria Lachapelle declined to comment.

Royal Bank led Canadian bank shares higher, rising 1.7 percent to C$52.56 in 4 p.m. trading on the Toronto Stock Exchange, the bank’s biggest one-day gain since Dec. 21. SunTrust rose 41 cents to $28.88 in New York Stock Exchange composite trading, while Zions climbed 18 cents to $24.31. Regions rose 17 cents to $7.22.

Scotiabank, which has operations in 50 countries, has said it wants to build on its businesses in Latin America and Asia. CEO Richard Waugh has spent about $2 billion of foreign acquisitions since 2007, with the bank aiming for at least 10 percent market share in the countries it operates in.

“Where we are not 10 percent are Chile and Mexico,” Scotiabank Chairman Sarabjit Marwah said today at the RBC Capital Markets conference. “If something were to come up whereby the local banks were for sale, it’s clearly something where we’d step up.”

Toronto-Dominion reiterated last month it will continue to look at U.S. companies with less than $10 billion in assets.

Opportunistic Deals

“We will do opportunistic, smaller deals to give us things that we can make money on,” Toronto-Dominion CEO Edmund Clark said today at the RBC conference. “We’re not at this stage contemplating that we’d do a major deal.”

Bank of Montreal may make acquisitions to increase its market share in the U.S. Midwest, said Mark Furlong, the Marshall & Ilsley CEO who will join the Toronto-based bank when the transaction closes this year.

“The world is their oyster,” said Touro College’s Williams. “They’re in a position where, be it Europe, South America or Asia, prices and opportunities abound.”

To contact the reporter on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; David Scheer at dscheer@bloomberg.net.

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