TORONTO-DOMINION BANK
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
THE TORONTO-DOMINION BANK
(Name of Registrant as Specified In Its Charter)
AMERITRADE HOLDING CORPORATION
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Form, Schedule or Registration Statement No.: |
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Filed by The Toronto-Dominion Bank |
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Pursuant to Rule 14a-12 under the |
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Securities Exchange Act of 1934 |
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Subject Company: Ameritrade Holding Corporation |
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Commission File No.: 000-49992 |
Forward-Looking Statements
The document included herein contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements relating to
anticipated financial and operating results, TD Bank Financial Groups plans, objectives, expectations and intentions and other
statements including words such as anticipate, believe, plan, estimate,
expect, intend, will, should, may, and other similar expressions. Such
statements are based upon the current beliefs and expectations of TD Bank Financial Groups management and involve a number of
significant risks and uncertainties. Actual results may differ materially from the results anticipated in these forward-looking
statements. The following factors, among others, could cause or contribute to such material differences: change in
-2-
general economic conditions; the performance of financial markets and
interest rates; the possibility that the transaction does not close when expected or at all, or
that the companies may be required to modify aspects of the transaction to achieve regulatory
approval; that prior to the closing of the proposed transaction, the businesses of the companies
suffer due to uncertainty; that TD Ameritrade is unable to transition customers, successfully
execute its integration strategies, or achieve planned synergies; that the parties are unable to
accurately forecast the anticipated financial results of TD Ameritrade following the transaction;
that TD Ameritrade is unable to compete successfully in this highly competitive and rapidly
changing marketplace; that TD Ameritrade is unable to retain employees that are key to the
operations of the combined business; that TD Ameritrade is unable to identify and realize future
consolidation and growth opportunities; the risk of new and changing regulation in the U.S. and
Canada; acts of terrorism; and war or political instability. Additional factors that could cause
TD Bank Financial Groups results to differ materially from those described in the forward-looking
statements can be found in TD Bank Financial Groups Annual Report on Form 40-F for the fiscal year
ended October 31, 2004, which was filed with the U.S. Securities and Exchange Commission on
December 13, 2004 and is available at the Securities and Exchange Commissions Internet site
(http://www.sec.gov).
Additional Information and Where to Find It
In connection with the proposed transaction, Ameritrade will be filing a proxy statement and
relevant documents concerning the transaction with the Securities and Exchange Commission (SEC).
SECURITY HOLDERS OF AMERITRADE ARE URGED TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. Investors and security holders can obtain free copies of the proxy statement and
other documents when they become available by contacting Investor Relations at www.amtd.com, or by
mail at Ameritrade Investor Relations, 4211 S. 102 Street, Omaha, NE 68124, or by Telephone:
800-237-8692. In addition, documents filed with the SEC by Ameritrade are available free of charge
at the SECs web site at www.sec.gov.
Ameritrade Holding Corporation, The Toronto-Dominion Bank, and their respective directors and
executive officers may be deemed to be participants in the solicitation of proxies from the
stockholders of Ameritrade in connection with the proposed transaction. Information regarding the
special interests of these directors and executive officers in the proposed transaction will be
included in the proxy statement of Ameritrade described above. Information regarding Ameritrades
directors and executive officers is also available in its proxy statement for its 2005 Annual
Meeting of Stockholders, which was filed with the SEC on January 24, 2005. This document is
available free of
charge at the SECs web site at www.sec.gov and from Investor Relations at Ameritrade as described
above. Information regarding The Toronto-Dominion Banks directors and executive officers is
available in its Annual Report on Form 40-F for the year ended October 31, 2004, which was filed
with the SEC on December 13, 2004, and in its notice of annual meeting and proxy circular for its
2005 annual meeting, which was filed with the SEC on February 17, 2005. These documents are
available free of charge at the SECs web site at www.sec.gov and by directing a request to The
Toronto-Dominion Bank , c/o TD Bank Financial Group, 66 Wellington Street West, Toronto, ON M5K
1A2, Attention: Investor Relations (416) 308-9030.
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This filing consists of the following materials:
(1) |
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Transcript of the presentation by Dan Marinangeli, Executive
Vice President and Chief Financial Officer of the TD Bank Financial
Group, at the 2005 Scotia Capital Financials Summit on September 13, 2005. |
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2005 Scotia Capital Financials Summit |
TRANSCRIPT OF DAN MARINANGELIS PRESENTATION
AT 2005 SCOTIA CAPITAL FINANCIALS SUMMIT
TUESDAY SEPTEMBER 13, 2005
(CHECK AGAINST DELIVERY)
THE INFORMATION CONTAINED IN THIS TRANSCRIPT IS A TEXTUAL REPRESENTATION OF THE TD BANKNORTHS
AND THE TORONTO-DOMINION BANKS (TD) CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN
ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING
OF THE SUBSTANCE OF THE CONFERENCE CALL. IN NO WAY DOES TD ASSUME ANY RESPONSIBILITY FOR ANY
INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON TDS WEB SITE OR IN THIS
TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE CONFERENCE CALL ITSELF AND TD BANKNORTHS AND TDS SEC
FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
FORWARD-LOOKING INFORMATION
From time to time, the Bank makes written and oral forward-looking statements, including in
this presentation, in other filings with Canadian regulators or the U.S. Securities and Exchange
Commission (SEC), and in other communications. All such statements are made pursuant to the safe
harbour provisions of the United States Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, among others, statements regarding the Banks objectives and
targets and strategies to achieve them, the outlook for the Banks business lines, and the Banks
anticipated financial performance. Forward-looking statements are typically identified by words
such as believe, expect, anticipate, intend, estimate, plan, may and could. By
their very nature, these statements require us to make assumptions and are subject to inherent
risks and uncertainties, general and specific, which may cause actual results to differ materially
from the expectations expressed in the forward-looking statements. Some of the factors that could
cause such differences include: the credit, market, liquidity, interest rate, operational and other
risks discussed in the management discussion and analysis section in other regulatory filings made
in Canada and with the SEC, including the Banks 2004 Annual Report; general business and economic
conditions in Canada, the United States and other countries in which the Bank conducts business, as
well as the effect of changes in monetary policy in those jurisdictions and changes in the foreign
exchange rates for the currencies of those jurisdictions; the degree of competition in the markets
in which the Bank operates, both from established competitors and new entrants; legislative and
regulatory developments; the accuracy and completeness of information the Bank receives on
customers and counterparties; the timely development and introduction of new products and services
in receptive markets; expanding existing distribution channels; developing new distribution
channels and realizing increased revenue from these channels, including electronic commerce-based
efforts; the Banks ability to execute its growth and acquisition strategies including those of its
subsidiaries; changes in accounting policies and methods the Bank uses to report its financial
condition, including uncertainties associated with critical accounting assumptions and estimates;
the effect of applying future accounting changes; global capital market activity; consolidation in
the Canadian financial services sector; the Banks ability to attract and retain key executives;
reliance on third parties to provide components of the Banks business infrastructure;
technological changes; change in tax laws; unexpected judicial or regulatory proceedings; continued
negative impact of the United States litigation environment; unexpected changes in consumer
spending and saving habits; the possible impact on the Banks businesses of international conflicts
and terrorism; acts of God, such as earthquakes; the effects of disease or illness on local,
national or international economies; the effects of disruptions to public infrastructure, such as
transportation, communications, power or water supply; and managements ability to anticipate and
manage the risks associated with these factors and execute the Banks strategies. A substantial
amount of the Banks business involves making loans or otherwise committing resources to specific
companies, industries or countries. Unforeseen events affecting such borrowers, industries or
countries could have a material adverse effect on the Banks financial results, businesses,
financial condition or liquidity. The preceding list is not exhaustive of all possible factors.
Other factors could also adversely affect the Banks results. For more information see the
discussion starting on page 37 of the 2004 Annual Report. All such factors should be considered
carefully when making decisions with
respect to the Bank, and undue reliance should not be placed
on the Banks forward-looking statements. The Bank does not undertake to update any forward-looking
statements, whether written or oral, that may be made from time to time by or on its behalf.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed transaction with Ameritrade, Ameritrade will be filing a proxy
statement and relevant documents concerning the transaction with the Securities and Exchange
Commission (SEC). SECURITY HOLDERS OF AMERITRADE ARE URGED TO READ THE PROXY STATEMENT AND ANY
OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. Investors and security holders can obtain free copies of the proxy
statement and other documents when they become available by contacting Investor Relations at
www.amtd.com, or by mail at Ameritrade Investor Relations, 4211 S. 102 Street, Omaha, NE 68124, or
by Telephone: 800-237-8692. In addition, documents filed with the SEC by Ameritrade are available
free of charge at the SECs web site at www.sec.gov.
Ameritrade Holding Corporation, The Toronto-Dominion Bank, and their respective directors and
executive officers may be deemed to be participants in the solicitation of proxies from the
stockholders of Ameritrade in connection with the proposed transaction. Information regarding the
special interests of these directors and executive officers in the proposed transaction will be
included in the proxy statement of Ameritrade described above. Information regarding Ameritrades
directors and executive officers is also available in its proxy statement for its 2005 Annual
Meeting of Stockholders, which was filed with the SEC on January 24, 2005. This document is
available free of charge at the SECs web site at www.sec.gov and from Investor Relations at
Ameritrade as described above. Information regarding The Toronto-Dominion Banks directors and
executive officers is available in its Annual Report on Form 40-F for the year ended October 31,
2004, which was filed with the SEC on December 13, 2004, and in its notice of annual meeting and
proxy circular for its 2005 annual meeting, which was filed with the SEC on February 17, 2005.
These documents are available free of charge at the SECs web site at www.sec.gov and by directing
a request to The Toronto-Dominion Bank , c/o TD Bank Financial Group, 66 Wellington Street West,
Toronto, ON M5K 1A2, Attention: Investor Relations (416) 308-9030.
The presentation may also be deemed to be solicitation material in respect of the proposed merger
of TD Banknorth and Hudson United. In connection with the proposed transaction, a registration
statement on Form S-4 will be filed with the SEC. SHAREHOLDERS OF TD BANKNORTH AND SHAREHOLDERS OF
HUDSON UNITED ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS
FILED WITH THE SEC, INCLUDING THE JOINT PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE
REGISTRATION STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER.
The final joint proxy statement/prospectus will be mailed to shareholders of TD Banknorth and
shareholders of Hudson United. Investors and security holders will be able to obtain the documents
free of charge at the SECs website, www.sec.gov, from TD Banknorth, Two Portland Square, P.O. Box
9540, Portland, Maine 04112-9540, Attention: Investor Relations, or from Hudson United, 1000
MacArthur Boulevard, Mahwah, New Jersey 07430, Attention: Investor Relations.
TD Banknorth, Hudson United, and their respective directors and executive officers and other
members of management and employees may be deemed to be participants in the solicitation of proxies
in connection with the proposed transaction. Information regarding TD Banknorths directors and
executive officers is available in its proxy statement for its 2005 Annual Meeting of Stockholders,
which was filed with the SEC on April 20, 2005, and information regarding Hudson Uniteds directors
and executive officers is available in Hudson Uniteds proxy statement for its 2005 annual meeting
of stockholders, which was filed with the SEC on March 23, 2005. Additional information regarding
the interests of such potential participants will be included in the joint proxy
statement/prospectus and the other relevant documents filed with the SEC when they become
available.
Dan Marinangeli EVP & CFO, TD Bank Financial Group
Kevin Choquette Analyst and Managing Director, Scotia Capital
Good afternoon and I know that was a very short lunch break but were just going to try to
keep on schedule here.
Our first presenter this afternoon from TD Bank Financial Group is Dan Marinangeli, executive vice
president and chief financial officer. Dan joined the bank in 1987 and in 1995 was appointed Senior
Vice President, Finance Division and to his current role in 1999. TD Bank has increased its common
dividend 100% since the beginning of 2000 with the bank being the most active of the Canadian banks
in terms of acquisitions, with Banknorth, Hudson United and Ameritrade.
Dan?
Dan Marinangeli EVP & CFO, TD Bank Financial Group
Slides
1 & 2
Thanks, Kevin. Its great to be here. Forward-looking statements, obviously, if there are any,
disregard them.
Slide 3
Id like to say three things today, if I can, and get three things across to you. The first point
Id like to make is basically describe our strategy for building a better bank, then describe in
more detail our four businesses and how the four businesses tie into our basic strategies, and
finally give you some indication, a sense of why we think TD is a different bank from our peer
group.
Slide 4
Our basic strategies in the bank are all geared towards lessening the barriers to a premium P/E
multiple. The TD trades at about 12.5 times next years consensus cash earnings. Thats well under
the average for the TSX, of course, and its not a particular premium to the other Canadian banks
either. We think we need to address four issues to reduce this discount.
The first issue is we need to outperform the market vis-a-vis earnings growth. We have to do that
with a lower risk profile. And third issue is we need to redeploy our capital, earning a
satisfactory return. I think weve done a reasonable job of that. And the fourth factor is really a
rele-factor , we have to have the confidence of our investors and we need to be consistent, we need
to do what we say were going to do. And its been the policy of the bank for several years now to
be very transparent and open with investors and basically follow through on what we say were going
to do.
I think weve done fairly well in points number one and two. I think we still have a challenge in
following through on point number three, the redeployment of our capital. I think weve made some
initial strides there, but obviously the game continues and well be judged on how well we do over
the next several years.
Slide 5
So, in terms of growth, looking at our segment performance weve experienced exceptional results in
our personal and commercial bank. Results so far this year are up 18% and it now represents 61% of
the total earnings of the bank. Weve got solid results in wealth, especially solid results in
Canada for wealth.
TD Banknorth is a new segment starting this year and year to date weve seen slight declines in our
wholesale business for reasons that Ill talk about later in the presentation.
Slide 6
So this is translated into, at the consolidated level, some pretty strong results. We have so far
year to date earnings of $3.08. Thats up 8% over the same period last year and youll recall that
last year was an exceptional year for the bank where our earnings were up 26% over the previous
year. We havent had any significant impact in these results of PCL reversals, which are, for the
most part, excluded from our core cash earnings.
Weve said that we felt that we could grow earnings per share in the range of 7 to 10% this year.
In order to do this we need to get earnings growth from our largest business, TD Canada Trust, by
about 10% or better and we need wealth to grow in excess of 10% because we dont see TD Securities,
our wholesale business, growing at 10% in the future. And Id say so far were on track.
Slide 7
Were quite pleased with our performance recently, especially how it compares to our peer group
where on a year to date basis weve now outperformed the peer group by about 16 percentage points
since 2003. But earnings growth needs to be compared to the level of risk that any bank takes to
get these earnings number and in this regard weve done even better.
Slide 8
We continue to outperform our peers in return on risk-weighted assets and were doing this despite
the very benign credit environment facing our industry. This environment probably isnt going to
stay this way forever. You have to wonder if all the banks are earning enough in their lending
businesses over a total credit cycle to get the kind of returns that are required.
Slide 9
Higher returns on risk-weighted assets implies our capital is growing very rapidly. In fact, that
is the case and in TDs case were currently generating about $1.5 billion a year in capital for
reinvestment. Weve been doing a fair amount of reinvestment recently. We estimate that the pro
forma tangible common equity ratio at the end of our third quarter, including the announced deal
with Ameritrade and Hudson United, would be about 7.6%.
Slide 10 & 11
So, looking at our four businesses, how have they performed and what are their strategies? We have
four very solid growing businesses. The first one Ill talk about is the personal and commercial
banking business in Canada, also known as TD Canada Trust. Its been a tremendous story for us,
both in terms of earnings growth and the generator of economic capital for the bank. In fact, this
is where the majority of the excess capital that the bank has generated has come from.
Slide 12
And how have we been doing it and what are the strategies that have worked so well in TD Canada
Trust? Well, we have basically tremendous market share in personal banking in Canada, about a 21%
market share across most personal products in Canada, higher in some, slightly lower than others.
But thats not across the board, so we have some businesses where our market share for historical
reasons are well under that 20 to 21%. Examples would include credit cards, small business and
commercial banking, the insurance business as well. Despite the fact that we do very well in
Meloche Monnex and weve seen exceptional growth in that business, we still only have single digit
market share in the P&C insurance business in Canada.
So what we need to do is we need to use the strengths in our personal banking businesses to improve
the market share and growth potential to those businesses where were underrepresented. Were using
our strengths to grow our weaker businesses. And we need to do that in order to grow faster than
the
market because we have got a fairly mature market in Canada but you need to grow faster in certain
businesses if youre to outperform that market.
Secondly, we feel very strongly that we need to continually reinvest in our systems and processes
in TD Canada Trust in order to produce cost savings two or three years out. So in TD Canada Trust,
IT spend is a goal, not a way to reduce expenses. There is never any pressure on our retail banking
staff to reduce IT spend in order to shave 0.5 point off the efficiency ratio. What we do is we
want to redeploy, reinvest the savings that weve had from previous initiatives into new
initiatives so that two or three years from now we will be able to reap the cost reduction benefits
in that way.
And finally, over time we need to continually invest in our growth businesses. A good example of
this is Meloche Monnex. Weve done a few very small tuck-in purchases in Meloche Monnex, which over
time have greatly enhanced the Meloche Monnex growth platform.
Slide 13
One of the great stories of the retail bank is that despite the fact that margins have declined
since 2002 fairly substantially across the whole system, weve been able to continually improve our
efficiency ratio. And thats a very difficult thing to do when your top line revenue is being
constrained by margin declines. Our efficiency ratio so far this year, 56.4%. Although banks dont
all report their business now on a consistent basis, we think that that is the best efficiency
ratio for retail banking in Canada. Were the low cost producer and thats the place where you
think where we think we really need to be given the maturity of the Canadian business.
Slide 14
Were also starting to get some traction in a few of our underrepresented businesses that I
mentioned before. So in small business and commercial banking, for instance, weve seen over the
past year, nine months year to date, we see business loans and deposits growing by about 9% on a
year over year basis. This is after several years of very static balances in our small business and
commercial banking businesses.
Likewise, on the insurance front you can see that our revenue net of claims in our insurance
businesses, being Meloche Monnex and our life insurance businesses, on a year to date 05 basis are
up about 47% over the previous year. Were seeing solid momentum in some of these underrepresented
businesses, especially in the small business and commercial banking business. I would say that in
the insurance businesses what were seeing is a very likely to be a plateauing of the growth
rate over the next several periods. We cant continue to grow at 47% for very much longer, but are
expecting insurance revenues to grow in the 10 to 15% range over the next foreseeable future.
Slide 15
So how does this compare to our peer group in terms of profitability in the personal commercial
bank? It compares quite well, of course. On a basis in 2002 to 2004, i.e. the two-year growth of
our P&C bank, were up 34% versus the peer group of 15%, more than doubling our peer group.
On a year
to date basis, three quarters 05 versus three quarters 04, were up 18% compared to the
13% peer group number. This is, we think, a substantial out-performance in what is supposed to be a
very mature well bank business.
Slide 16
Moving on to our wealth management story, we think theres a pretty good story on this front as
well. The strategy here again, same as in retail banking, use our strengths to address our
weaknesses.
And, as
you know, because the TD Bank did not buy a full service brokerage in
the late 80s like
the other banks, we have had a very significant under-representation in the full service brokerage
business. And despite the fact that we have a very strong discount brokerage business, weve been
underrepresented in some other facets of the wealth business in Canada.
So what we need to do is invest on the advice side, as we said on many occasions, and, in fact,
weve been successful at this in the last nine months. The non-discount portion of this business in
Canada has grown by 32% in the nine months year to date over the same period last year. The key is
to use our very strong distribution channels in Canada and to continue building on our investment
advisor and financial planner networks.
And weve we started 2005 with 364 planners. We had planned to build that by 100 during the year
and were on track to do that. On the investment advisor front we started at 414 and we had planned
to add 50 and were on track to add 50 for the year. So were on track to get to our planned
numbers by the end of this fiscal year.
Slide 17
One of our extreme strengths in the wealth management business, of course, is our retail mutual
fund business. This has performed exceptionally well and really has been built on exceptional
performance over the last several years. You can see in this chart that our Morningstar 4 & 5 star
rated accounts are higher than the industry and likewise our 1 & 2 star rated funds are well under
what the industry has as a norm. So were performing better than the industry.
And because of that, to a large extent because of that, in our very strong distribution network we
are the number two retail fund, retail mutual fund complex sales firm at $3.8 billion so far this
fiscal year. Weve been gaining market share, extensive market share, both in the banking part of
the fund business and in the total industry part of the fund business. Its clear that effective
distribution is clearly becoming to the fore here and the banks, of course, are doing very well as
a result and we are one of the biggest beneficiaries of that trend.
Slide 18
So all in, weve seen tremendous growth in our wealth management business with a very strong
non-discount component. On the discount side the big story, of course, is our announced pending
Ameritrade deal. We announced that in late June. I wont say a lot about Ameritrade or Banknorth
now because both of those companies are on the agenda, Banknorth right after me today and
Ameritrade tomorrow.
Slide 19
But if you wanted to look at the impact that Ameritrade could have on the profitability of our
wealth businesses, if you assume that our domestic wealth business, including TD Waterhouse Canada,
were to continue at the same pace as we have for the first three quarters of this year, and that
would include TD Waterhouse Canada, continue at that pace in 06
and 07 and if you were to also
make the same assumption with TD Waterhouse U.S. and Ameritrade going into the combined entity of
TD Ameritrade, i.e. the last nine months would be annualized and the same results would be achieved
in 06 and 07. If you then layered in the synergies that weve modeled and disclosed at the
analysts meeting in June and any funding costs associated with the deal, you can see a fairly
significant impact in terms of profitability on our wealth business in total.
Slide 20
So moving on to the wholesale banking business in TD Bank Financial Group, this has been a success
story as well but for different reasons. It certainly hasnt been a success story from an earnings
growth perspective. You can see that net income has been relatively flat over the last three years
if you include the nine months year to date number for this year. But its been hugely successful
from a risk reduction perspective.
I have a slide in a few minutes on the risk of TD Securities. Youll see that its greatly reduced
over this period. That results in less capital being used and despite the fact that earnings
havent grown very much over the last few years, our return on invested capital is very
satisfactory, approaching 20% in 03 and exceeding 20% in both
04 and year to date 05. And the
fact that we use return on invested capital and
economic profit as a prime metric in the securities industry I think is quite unusual for that
industry, as most of you may know, in fact.
Slide 21
So weve developed a different strategy for TD Securities. It operates within a fairly modest
capital allocation. Its currently at $2.6 billion, so the risks that they take are commensurate
with the allocation of capital and greatly reduced from previous periods. As I mentioned, the key
metric is return on invested capital54 economic profit, so that tends to align the goals and
desires of our senior management team in TD Securities with that of the TD Bank and shareholder
group. And I dont think that is all that common in the industry.
Consistent with this strategy we continue to focus TD Securities in Canada. We announced in the
second quarter that we would be restructuring our structured products business that is outside of
Canada and we continue to look at ways to reduce the riskiness of TD Securities generally through
retrenching to Canada and generally through reducing the capital usage in those marginal businesses
that dont return a satisfactory return on invested capital.
Slide 22
One of our prime domestic focuses in the last several years is to improve our institutional
equities business and you can see that based on the stock the block trade percentage of market
share, weve moved from number five in 2002 up to number one with a 16.2% market share year to date
in 05. Again, great success here.
What weve had in the past in TD Securities is a very strong fixed income business, as you probably
know, and what weve attempted to do here is match it in Canada with a strong equities business as
well. I think itd be fair to say, though, that with a fairly strong equities and fixed income
business, we still lag the industry in terms of investment banking and historically weve lacked
the diversified deep franchise that the other security firms have in Canada. And so what were
doing is were focusing our effort in Canada and attempting to again bring the resources back where
we think we can have a significant impact in Canada.
Slide 23
Evidence of the reduction in risk can be seen on the next slide and you can see that in 2002 we had
average invested capital of 4.2 billion and thats now down to an average in Q3 of $2.6 billion, a
significant reduction in capital used, and with a commensurate reduction in the risk-weighted
assets used in TD Securities, 62 billion total in 2002 down to only $32 billion currently.
A number of factors went into play in terms of risk reduction obviously. The non-core credit
portfolio, corporate lending portfolio, the rundown of that portfolio, which was very successful,
reduced both capital used and risk-weighted assets. As well, the focus on our trading businesses
and developing more sophisticated models within the market risk category has also reduced
significantly the risk-weighted assets used in that business.
Slide 24
Just a few words on TD Banknorth. From TDs perspective, as Peter Verrill is going to be saying a
few words about TD Banknorth in a few minutes, but were quite pleased with the way TD Banknorth
has performed so far. Again, its very early days. Weve had effectively one full quarter and a
part quarter of their results included in our consolidated results. Banknorth was a significant
strategic move for the TD Bank. I shouldnt have to say that; most of you know thats true. What it
does is it gives us scope for the redeployment of capital in future periods and to get higher
growth in earnings within our peer group in Canada.
The pending acquisition of Hudson United proves that we can indeed expand the footprint of TD
Banknorth out of its traditional geography. And the fact that we have strong local management
onsite for
Banknorth makes this a doable strategy. Without local management you wouldnt be able to expand the
local footprint to the degree that we have in a short period of time in Banknorth.
Slide 25
In terms of TD Ameritrade, again TD Ameritrade is presenting tomorrow, but the new TD Ameritrade
will be an exceptionally strong competitor in its industry, very well positioned. Itll be the
largest discount broker by trades per day in the industry. Itll be well placed to participate in
future consolidation in this industry and it now appears that the TD and Ameritrade deals that we
announced in June has probably been a spark or an incentive for other firms to participate in
consolidation, as we saw with Harris Direct.
This will take the TD brand across America. This will be a very large business. Itll have a very
high profile in the U.S. Coupled with our brand of TD Banknorth in the northeast, the TD Ameritrade
brand, which well be able to spend significant amounts of money on media purchases, TD will become
a much more known brand name in the U.S. It also fits very well with our overall strategy.
We like our business we like our businesses to be of critical mass. We like our businesses to be
competitive, we like them to be able to stand on their own and survive. TD Ameritrade will
certainly meet that criteria. This will be a very, very strong competitor in its space. And very
strong businesses in individual geographies and individual businesses should result in stronger P/E
for the consolidated bank stock here back in Canada.
So, as you look at this pie chart, you can see that our earning stream will be more diversified
once we close the Ameritrade deal. Ameritrade will TD Ameritrade will represent about 8% of the
cash earnings of the bank once all the synergies are realized, Banknorth, about 9%, again when all
synergies are realized with Hudson United. TD Waterhouse in the Canadian wealth business, the fund
business and the full service business, will represent about 11% of our total profitability and our
wholesale business at 19%, slightly under 20%, with a balance, a very significant 53%, representing
TD Canada Trust in Canada.
Slide 26 & 27
So, when you get down to the end of it, why is TD Bank different than our peer group? What
differentiates us from the other four major banks in Canada? Well, I hope Ive described the lower
risk profile that the TD Bank has. Thats been a conscious decision on our part. I think its fair
to say that we kind of got a few hints along the way as to what we should do in that regard. 2002
may have been an example of learning through necessity, but once we did learn we have applied those
strategies extensively.
We do have faster organic growth than our peer group. We dont view Canada really as a slow growth
franchise given the fact that we have certain under-penetrated businesses. The TD Canada Trust
merger produced some anomalies in the market shares of our various businesses and its our task and
our strategy to exploit those anomalies using our strengths to deal with our weaknesses.
We have an incredible focus on capital management and optimizing invested capital. I think this is
clearly a differentiating factor between this bank and others. We recognize that this isnt really
a strategic game were playing. Strategies are pretty simple. I think you can read about strategies
in the global mail almost any day. What you have to be able to do is apply those strategies, put
them into place, and execute those strategies in a way that creates shareholder wealth. So far I
think were on track. We have a long way to go.
And lastly, I think the TD Bank has by far the strongest U.S. growth platform of any of the major
banks, in fact, two significant players, TD Banknorth, which is a dominant player in its region,
and TD Ameritrade, which will be a very strong competitor across the whole U.S. market.
Slide 28
We have some other materials, which if I flipped to this slide already, I apologize for not
plugging it sooner. We also have some pending securities filings and so I ask you to read this
slide, please.
And now, Kevin, were open for questions.
QUESTION AND ANSWER
Kevin Choquette Analyst and Managing Director, Scotia Capital
Dan, TD has been a leader on the Canadian banks and taking parts of itself public in order to
achieve higher valuations and strategic benefits associated. With that Im thinking, of course, of
Waterhouse. It was private, public, private and it will be public again when its blended into
Ameritrade and Banknorth, of course. But it seems to me that TD should be the first of the big
banks to carve out part of itself as an income trust. Can you please talk about your thoughts in
that regard, in particular in Canadian wealth management operations and perhaps even TD Canada
Trust?
Dan Marinangeli EVP & CFO, TD Bank Financial Group
I think there are considerable impediments to creating an income trust that are parts of the bank.
To be honest, we havent spent a lot of time thinking about how we might achieve what youve
suggested. There are considerable regulatory questions. The Canadian banks are, as you know, are
creatures of the Canadian Bank Act, which anticipates a corporate form at the consolidated level
certainly. So I think the whole bank doing an income trust would be not on the table.
Components of the bank would lend itself to an income trust in that they would have fairly stable
cash flows I think. We have no plans for doing that and I would be quite surprised if any plans are
hatched in the short term.
The real solution, of course, is very simple here. The finance department, the Canadian government
should fix the double taxation of dividends. And that would be very positive from a corporate
Canada perspective, exceptionally positive from the Canadian bank perspective.
And, in fact, I would submit that fixing that problem with the current tax rules would be more
positive to the bank as a whole than spinning off a part of its business in a trust form, which
would always be, to be honest, would be open to future tax law change and restructurings required
therefore and it would be, in some respects, perhaps the last straw in terms of fixing the current
trust rules. Im not sure that it would be very wise for the banks to get in the middle of that.
Kevin Choquette Analyst and Managing Director, Scotia Capital
Other questions? Keith?
Unidentified Audience Member
Thank you. Dan, can you bring us up to speed where youre going to be on the unsecured lending
platform and how thats going to roll out and the timeframe for that plus any comments on what
youve been doing in your credit card market share? You guys have been very aggressive marketers.
Are you seeing any increases of market share there or where that stands?
Dan Marinangeli EVP & CFO, TD Bank Financial Group
Okay, the first question, Keith, youre wondering about our laser development. Weve been
developing an unsecured lending platform now for several years. We have parts of it in place. It
rolls in over the next
nine months or so. Well have it all in place by the middle of next year. I would say that at this
stage were cautious about the impact that might have on market share or ability to grow that
business. We have seen no appreciable growth in those unsecured balances. We have not gained market
share. You can see by looking at the PCL numbers that weve recorded that we have not blown up PCL
numbers as a result of expanding that business. It is our desire to expand that business, but were
going very slow and were going to be very careful that we dont destroy value here by expanding
too fast.
Its clear that the unsecured personal lending business in Canada hasnt been, over an extended
period of time, a creator of economic profit and you go back in a historical sense, it generally
has been an under-priced product in Canada. And so were looking at ways to make it an economic
profit creator at the same time as expanding our volumes and market share and we really want to go
slow on that.
In terms of our credit card business, I would say that were not expanding market share to a
significant extent and that were growing volumes in single digits, whereas some of our competitors
are doing double digits. So again, the unsecured platform that we need to expand that business is
the same ones Im talking about. So I would say that were being slow and careful on both fronts.
Kevin Choquette Analyst and Managing Director, Scotia Capital
Questions? Dan, how would you recap your return expectations on a longer-term basis with respective
Banknorth and Ameritrade?
Dan Marinangeli EVP & CFO, TD Bank Financial Group
The Banknorth ROIC for the first full quarter, Kevin, as you know, was about 5.5%. When we did the
deal we were looking at slightly higher ROICs than that the initial period, only 50 basis points
higher, 6% was the expectation. So were pretty well there in the first quarter, close, and we hope
to be there for the full year. So Id say that Banknorth has met our expectations. Its certainly
met our expectations in finding a good deal to do. Its those follow-on deals that improve ROIC, so
in fact if anything, were probably a little bit ahead of schedule in terms of getting that next
deal done. So were happy with Banknorth.
Ameritrade, its early to say and its difficult for us to actually figure out what the actual ROIC
is for Ameritrade because were taking an asset that weve built up over a number of years. We had
taken significant amounts of capital out of that business over this period and, in fact, if you
were to go back and look at all the money we spent on TD Waterhouse in the U.S., deduct all the
money we made on the IPO and selling parts of that business off, like the night trading shares that
they had back in the 90s, youre hard pressed to find any invested capital. So we will be
investing some more cash and buying up to the 39.9%. The return on that capital will be very, very
strong. So it cant help but be a winner.
Unidentified Audience Member
Given your interest obviously in investing more along the Banknorth route, does this mean that
youll likely be as active in the buyback of your shares? And can you just discuss a bit of the
tradeoff that you see and the rate return that you can get from a buyback of your shares versus the
rates of return on a shorter-term or longer-term basis that you see in acquisitions?
Dan Marinangeli EVP & CFO, TD Bank Financial Group
Okay. In fact, were not very active in buying our shares back at all. We havent been active in
buying our shares back for, oh, a couple of years I think. And even at that point we were only
buying shares back as
a result of dilution on the option plans. The TD Bank has not been an active buyer of its own
shares for quite some time.
We feel that the best way to create shareholder wealth in owning TD Bank shares is to earn a return
on our invested capital in excess of the equity cost of capital that we have. By definition, you
cant buy your shares back and do that. We think that we can invest in places like Banknorth or TD
Ameritrade where we can earn the cost of equity at the bank. And its longer term, perhaps, in the
case of Banknorth at 6% or 5.5%. Its not the equity cost of capital of our retail businesses. We
think its more like 9%, so well need to build up that level over the next year or two.
We feel that its the redeployment of capital that were paid to do and its finding opportunities
to redeploy that capital or raise the return in excess of the equity cost of capital. Thats our
job. Thats our number one job. Thats what we intend to do. If it ever gets to the point where
theres some environmental reason why there is just nothing to invest in, period, across the whole
spectrum of possibilities, then we would certainly look back at buying our shares. But its hard to
imagine that buying your shares back is the only or the best always possible use of your capital,
in my view, my personal view.
Kevin Choquette Analyst and Managing Director, Scotia Capital
Okay, on that note Id like to thank Dan for his presentation.
Dan Marinangeli EVP & CFO, TD Bank Financial Group
Thanks, Kevin.