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TD’s Masrani Targets U.S. as Clark’s Successor: Corporate Canada

Toronto-Dominion Bank Head of U.S. Operations Bharat Masrani
Bharat Masrani has been in charge of the bank’s U.S. operations since 2007 and was named yesterday to succeed Edmund Clark when the 65-year-old CEO retires in November 2014. Photographer: Louis Lanzano/Bloomberg

Bharat Masrani, who helped oversee Toronto-Dominion Bank’s $25 billion U.S. expansion, is likely to add to that business when he takes over next year as chief executive officer of Canada’s second-biggest bank.

Masrani, 56, has been in charge of the bank’s U.S. operations since 2007 and was named yesterday to succeed Edmund Clark when the 65-year-old CEO retires in November 2014. Masrani will become operating chief in July, moving to Toronto from Philadelphia to begin the transition.

Toronto-Dominion, which has a goal of becoming the third-largest bank in New York City by number of branches, is betting on U.S. growth as loan demand slows in Canada. The bank has a network of 1,325 branches from Maine to Florida, about 14 percent more than it has in Canada.

“At some point, TD will become a U.S. bank that is based in Toronto,” said John Aiken, an analyst at Barclays Plc. “It’s just not going to happen overnight.”

The transition could happen under Masrani, said Aiken, who has an overweight rating on Toronto-Dominion shares. Born in Uganda and a Canadian citizen, Masrani has been with the Toronto-based lender since 1987, when he started as a commercial banker trainee.

“It was actually quite a natural choice,” Clark said yesterday in a telephone interview. “Bharat clearly has enormous business acumen, enormous understanding” and has had “experience throughout the bank.”

Consumer Slump

Canada’s banks face a slowdown in consumer lending, the result of a housing slump and record levels of household debt. Standard & Poor’s said last month it expects revenue and loan growth for Canadian banks to reach “mid single-digit levels” in 2013, down from 9 percent and 10 percent, respectively, in 2012.

Clark said at the bank’s annual meeting of shareholders in Ottawa today that it will be tougher to meet lender’s target of annual adjusted earnings per share growth of 7 percent to 10 percent.

“You can already see that in our stock price, which has had little growth in the last year, because the market worries we cannot match past performance,” Clark told investors, according to prepared remarks distributed to reporters.

Toronto-Dominion slid 1.7 percent to C$82 at 4 p.m. in Toronto, the most since Dec. 6. The shares have declined 2.1 percent this year.

‘Anemic’ Growth

The bank is also confronted with a low interest-rate environment, “anemic” growth and regulatory headwinds, Masrani said yesterday during a telephone interview.

“These are the growth challenges that are faced by all the banks,” Masrani said. “We are placed well in meeting those challenges. We created a franchise that continues to grow during good times and bad times.”

Toronto-Dominion has been the best performer of the five largest Canadian banks over the past decade. The shares gained 239 percent including dividends since Clark became CEO in December 2002 through the end of last year. That compares with the 192 percent advance of the eight-company S&P/TSX Commercial Banks Industry Index during the same period.

Masrani has held a variety of roles at Toronto-Dominion including chief risk officer. In 2002, he was given the job of helping the bank exit about C$11 billion ($10.9 billion) in corporate loans, which he reduced ahead of schedule.

Dog Treats

“Ed provided me with the opportunity to do different things in the bank,” Masrani said. “And he always put it under the umbrella of ’Bharat, this is the next development role.’”

Under Masrani, Toronto-Dominion started a strategy in the U.S. called “retail-tainment.” Each branch features coin-counting machines, free pens, lollipops and piggy banks for children, as well as water bowls and treats for dogs.

“In our view, Mr. Masrani’s experience positions him well to maintain the strategic course set by Ed Clark, particularly with regard to the bank’s U.S.” business, said Peter Routledge, an analyst at National Bank Financial Inc. in New York.

Toronto-Dominion has become the 8th-largest deposit-taker in the U.S. through acquisitions, said Routledge, including Portland, Maine-based Banknorth Group Inc. and Commerce Bancorp Inc. of Cherry Hill, New Jersey.

U.S. consumer banking had profit of C$1.42 billion last year, representing 20 percent of earnings. Toronto-Dominion has said it will have profit of $1.6 billion from the U.S. for the fiscal year that ends in October.

Management Changes

“The main challenge for Masrani is that of the key employee from the United States adjusting to being head of what is really a Canadian bank,” said Michael Smedley, who helps manage C$1 billion at Morgan Meighen & Associates in Toronto, including bank shares.

While Toronto-Dominion maintains it doesn’t need to make a U.S. acquisition, Clark told investors yesterday that the bank is “capable” of doing so during the transition period.

Toronto-Dominion announced yesterday that Mike Pedersen, 52, head of wealth management and insurance, will take over Masrani’s U.S. role. Tim Hockey, 49, head of Canadian consumer banking, will add wealth management to his current role, while Riaz Ahmed, 50, will be in charge of insurance and credit cards.

Other executives including Chief Financial Officer Colleen Johnston, 54, will have added responsibilities, while management of the TD Securities investment bank will remain unchanged.

“I’m fortunate and blessed that we have the team that we do, because this team has delivered,” Masrani said. “We’ll continue to do that going forward.”

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