Invaders From The North

Canada's big new bank eyes overseas brokerages

The Canadians are coming! In fact, they're already here. Citigroup was heralded as the template for a new form of financial supermarket. But the merger of the Canadian Imperial Bank of Commerce, the country's second-biggest, and fifth-ranked Toronto Dominion Bank will create a global financial services network that in many ways will be broader and more advanced than the Citicorp/Travelers Group Inc. amalgamation. Canada's combination will offer everything from full-service brokerage and discount mutual-fund trading to checking accounts, credit cards, and mortgages across the U.S.

Like other Canadian banks on the march to the south, CIBC and TD have been quietly buying their way into the U.S. markets. CIBC acquired the full-service broker Oppenheimer & Co. last July, for $525 million, while TD in the past 18 months has spent nearly $800 million snapping up brokerages to become the world's third-largest discount broker. TD's 1.3-million customer foothold in the U.S. ranks behind only Charles Schwab & Co. and Fidelity Investments, and now Oppenheimer provides an additional 160,000 customers. When their Apr. 17 deal becomes final, the banks will be able to blanket the U.S. both electronically and through an extensive storefront network. CIBC chief Al Flood and TD CEO A. Charles Baillie say their aim is nothing short of global dominance, creating the "premier fully integrated discount brokerage in the world."

BIG RIVALS. The new bank, which will use the CIBC name, faces a formidable array of competitors, many much larger. But they were already ahead of the rest of the industry in these services. TD, like all the Canadian outfits, has long been able to offer both brokerage and banking services at home. Because its Green Line discount brokerage already controls more than 60% of discount trades in Canada, it has looked abroad for growth, moving into the U.S., Australia, Hong Kong, and Britain. Its biggest buy, the $500 million purchase of Waterhouse Investor Services Inc. in 1996, plunged TD into New York, "where the world's best competition is," says TD Vice-Chairman J. Duncan Gibson. Worldwide, TD claims more than 2 million brokerage customers.

The key to the banks' strategy is building an extensive brokerage network, which is less costly than buying banks. As these brokerage networks let TD roll out Internet banking services across the U.S., it will become a nationwide banking player in the States. "In essence, they've built themselves a national banking franchise without paying the price to do it," says Bill Burnham, an electronic commerce analyst for Piper Jaffray Inc. in Minneapolis.

In March, TD's Waterhouse unit, chartered in the U.S. as a bank, began promoting banking services, alongside its brokerage business. "The discount brokerage marketplace in many respects is the bank of the future," argues Waterhouse Chief Executive Frank J. Petrilli.

In staking a claim to discount brokerage clients, who accounted for about $2.05 billion of 1997's $14.4 billion in U.S. retail brokerage commissions, the new CIBC will face serious competition in banking and trading. Quick & Reilly Group, with 1.2 million customers, was acquired in February by Fleet Financial Group Inc. in a $1.6 billion stock swap.

Despite such lofty returns, competition is escalating, as discount trading mushrooms on the Net. That has triggered a race to the bottom in fees, with many electronic trades fetching less than $8 each, compared with $39 or more for conventional discount trading and, at some full-service firms, hundreds of dollars. Waterhouse is trying to hold the line at $12 on the Net, while fees for its office trades average about $42.

Although brokerage is a far more volatile business than banking, CIBC will be reducing its risks through global expansion. "We're not so naive as to say this isn't a cyclical business," says Gibson. "But we're here for the long haul." That, at least, may be a lot more achievable than global dominance.

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