TD Seeks More Credit-Card Purchases Following Nordstrom Dealby
CEO Masrani would mull small takeovers to expand U.S. network
U.S. Southeast holds appeal for Toronto-Dominion Bank
Toronto-Dominion Bank Chief Executive Officer Bharat Masrani said he’s interested in buying more credit-card loans and would consider “tuck-in" takeovers in the U.S. Southeast to build up the lender’s U.S. retail branch network.
Canada’s largest lender by assets has bought about C$20 billion ($14.6 billion) of credit-card assets in Canada and the U.S. in the past four years, including $2.2 billion of credit-card receivables from Nordstrom Inc. in October. The Nordstrom deal, which included an agreement to become the Seattle-based retailer’s exclusive U.S. issuer, followed the March 2013 purchase of $5.7 billion of card balances from Minneapolis-based retailer Target Corp.
“If another Target, Nordstrom type deal were to show up, we would be very interested," Masrani, 59, said Friday in an interview at Bloomberg’s Toronto office. "If there are good assets that fit within our risk appetite, that provide us with decent risk-adjusted returns, we would certainly look at it very seriously.”
Masrani said he’d also consider small purchases to fill in its U.S. branch network along the East Coast, though he added that Toronto-Dominion doesn’t need to do acquisitions. The U.S.-based TD Bank consumer lender has 1,298 branches stretching from Maine to Florida, with Georgia the only state along the Eastern Seaboard without a presence.
“There are pockets out there that perhaps we may not have, but we’re working on those," Masrani said. "We don’t need to do an acquisition for that purpose."
Toronto-Dominion under Masrani’s predecessor, Ed Clark, spent about $17 billion over a decade building a U.S. branch network that rivaled its Canadian branch presence. Toronto-Dominion expanded under Clark with U.S. acquisitions, starting with its 2005 purchase of 51 percent of Portland, Maine-based Banknorth Group Inc. The firm expanded to the U.S. Southeast in 2010 by acquiring South Financial Group Inc. and three Florida-based banks.
If Toronto-Dominion sees a "compelling opportunity" that makes sense strategically and culturally, which helps the branch network, and the bank could get a "reasonable deal," he’d certainly look at it, Masrani said in the interview.
"The southeast of the United States is particularly attractive in that regard," Masrani said, adding that Florida has proved to be a “very good business” after spending the last few years expanding from seven branches to 157 today.
“We keep on adding to it organically, but if a small tuck-in were to show up like South Financial, which we bought during the financial crisis, then we’d certainly look at it seriously, because that would accelerate our organic plans quite dramatically," Masrani said.
Toronto-Dominion is focusing in the meantime on opening more branches across its U.S. footprint to gain scale where it’s most needed, Masrani said. The bank opens about 30 branches in the U.S. every year. High-growth markets such as New York City, Boston and Philadelphia have seen a “huge uptick," Masrani said in an interview with Pamela Ritchie for Bloomberg TV Canada. The focus is to add branches in the major metropolitan areas of New York City, Philadelphia, Miami and Washington D.C., he said.
“We feel we have sufficient scale in most of the markets where we operate," he said in the TV interview. “Where we don’t, we will consider opening new stores."
Masrani said “economic headwinds" in Canada fueled by an oil shock, combined with low interest rates, will make it challenging for Toronto-Dominion to reach its goal of increasing per-share earnings by 7 percent to 10 percent over the medium term. His warning echoed that of a year ago, though Masrani said for the fiscal year Toronto-Dominion lifted earnings by 8 percent from 2014.
"I’m not clairvoyant, maybe I’ll be wrong again," Masrani said. "But my view is, today, where I sit, I think it will be difficult to get it to that range."