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National Bank Agrees to Buy TD’s Institutional Services Unit

National Bank Agrees to Buy TD’s Institutional Services Unit
The National Bank of Canada logo is displayed outside of the company's headquarters in Montreal. Photographer: Brent Lewin/Bloomberg

National Bank of Canada agreed to buy Toronto-Dominion Bank’s institutional services unit in a C$250 million ($242.1 million) deal, expanding its own business handling back-office operations for investment firms.

National Bank, the nation’s sixth-largest lender, expects the transaction to boost earnings per share by 12 cents in 2014 and 14 cents in 2015, the company said today in a statement. The unit, TD Waterhouse Institutional Services, provides trading, clearing and record-keeping for asset managers and brokers.

The deal helps National Bank build on its own institutional services business that already works with managers overseeing more than $50 billion in assets, according to the statement. The TD unit, founded in 1987, assists firms and handles $34 billion in assets.

“We will extend our reach by adding over 260 additional market intermediaries who serve over 130,000 client accounts,” Luc Paiement, co-chief executive officer of National Bank, said in the statement.

The acquisition’s price may be adjusted if assets decline, National Bank said. The firm expects to complete the deal this year.

TD, Canada’s second-largest lender, rose 0.3 percent to C$86.80 at 4 p.m. in Toronto. National Bank slipped 0.3 percent to C$78.81.

The transaction will reduce National Bank’s common equity Tier 1 ratio under Basel III rules by about 40 basis points, leaving it above 8 percent, the firm said. A basis point is 0.01 percentage point.

The deal won’t be material for earnings but investors may view the decline in capital ratios negatively, John Aiken, an analyst at Barclays Plc, said in a note to clients.

“We view the acquisition by National Bank as neutral to our valuation,” Andre-Philippe Hardy, an analyst at RBC Capital Markets, said in a note to clients after the announcement. The positive impact on earnings per share would be offset by the negative impact on capital, he wrote.

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