e425
Filed by The Toronto-Dominion Bank
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 under
the
Securities Exchange Act of 1934
Subject Company: The South Financial Group, Inc.
Commission File No.: 0-15083
This filing, which includes communications sent to employees of TD Bank, Americas Most
Convenient Bank and The Toronto-Dominion Bank on September 20, 2010, may contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995 and
comparable safe harbour provisions of applicable Canadian legislation, including, but not limited
to, statements relating to anticipated financial and operating results, the companies plans,
objectives, expectations and intentions, cost savings 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 our
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: the ability to
obtain the approval of the transaction by The South Financial Group, Inc. shareholders; the ability
to realize the expected synergies resulting from the transaction in the amounts or in the timeframe
anticipated; the ability to integrate The South Financial Group, Inc.s businesses into those of
The Toronto-Dominion Bank in a timely and cost-efficient manner; and the ability to obtain
governmental approvals of the transaction or to satisfy other conditions to the transaction on the
proposed terms and timeframe. Additional factors that could cause The Toronto-Dominion Banks and
The South Financial Group, Inc.s results to differ materially from those described in the
forward-looking statements can be found in the 2009 Annual Report on Form 40-F for The
Toronto-Dominion Bank and the 2009 Annual Report on Form 10-K of The South Financial Group, Inc.
filed with the Securities and Exchange Commission and available at the Securities and Exchange
Commissions Internet site (http://www.sec.gov).
The proposed merger transaction involving The Toronto-Dominion Bank and The South Financial
Group, Inc. will be submitted to The South Financial Group, Inc.s shareholders for their
consideration. The Toronto-Dominion Bank has filed with the SEC a Registration Statement on Form
F-4 and a definitive proxy statement/prospectus and each of The Toronto-Dominion Bank and The South
Financial Group, Inc. may file with the SEC other documents regarding the proposed transaction.
Shareholders are encouraged to read the definitive proxy statement/prospectus regarding the
proposed transaction, as well as other documents filed with the SEC because they contain important
information. Shareholders may obtain a free copy of the definitive proxy statement/prospectus, as
well as other filings containing information about The Toronto-Dominion Bank and The South
Financial Group, Inc., without charge, at the SECs Internet site (http://www.sec.gov). Copies of
the definitive proxy statement/prospectus and the filings with the SEC that will be incorporated by
reference in the definitive proxy statement/prospectus can also be obtained, without charge, by
directing a request to The Toronto-Dominion Bank, 15th Floor, 66 Wellington Street West,
Toronto, ON M5K 1A2, Attention: Investor Relations, 1-866-486-4826, or to The South Financial
Group, Inc., Investor Relations, 104 South Main Street, Poinsett Plaza, 6th Floor,
Greenville, South Carolina 29601, 1-888-592-3001.
The Toronto-Dominion Bank, The South Financial Group, Inc., their respective directors and
executive officers and other persons may be deemed to be participants in the solicitation of
proxies in respect of the proposed transaction. 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, 2009, which was filed with the Securities and Exchange Commission on December 03, 2009,
its notice of annual meeting and proxy circular for its 2010 annual meeting, which was filed with
the Securities and Exchange Commission on February 25, 2010, and the above-referenced Registration
Statement on Form F-4, which was filed with the SEC on August 24, 2010. Information regarding The
South Financial Group, Inc.s directors and executive officers is available in The South Financial
Group, Inc.s proxy statement for its 2010 annual meeting, which was filed with the Securities and
Exchange Commission on April 07, 2010. Other information regarding the participants in the proxy
solicitation and a description of their direct and indirect interests, by security holdings or
otherwise, is contained in the definitive proxy statement/prospectus and other relevant materials
filed with the SEC.
THE FOLLOWING IS A COMMUNICATION SENT TO EMPLOYEES OF TD BANK, AMERICAS MOST CONVENIENT BANK AND
THE TORONTO-DOMINION BANK ON SEPTEMBER 20, 2010.
Daily News Brief
September 20, 2010
Compiled by Jimmy A. Hernandez, Corporate and Public Affairs
TD BANK NEWS
1. |
|
TD Bank Seeks Top 3 Spot in C. Florida Orlando Business Journal |
Brian Ziemba, 47, has an audacious goal that should put his competitors on notice. The new Central
Florida market president for TD Bank NA, which entered Orlando earlier this spring, plans to wrest
away a large chunk of market share within the next five years, making TD Bank one of the areas
three largest banks.
2. |
|
The Changing Banking Landscape The Miami Herald [A Spanish-language version of this
article also ran in the Miami Heralds sister newspaper, El Nuevo Herald.] |
Drive down any commercial boulevard in South Florida, and youll likely encounter an alphabet soup
of relatively new financial institutions: BB&T, TD Bank, PNC Bank and others.
3. |
|
TD Bank to Install Penny Arcade at Former Riverside Location in Vero Beach TCPalm (FL) |
TD Bank will celebrate the rebranding of all Riverside National Bank locations Sept. 24 with an
installation of its Penny Arcade at the Vero Beach location Monday.
4. |
|
Floridas Bank Failures Prove To Be A Boon To Their Buyers Sarasota Herald- Tribune
(FL) |
IF THERE IS ONE SURE WAY TO grow a bank in Florida these days, its by taking over a failed bank.
Several bank companies have dramatically boosted their Florida footprints in the past year by
buying failed institutions, according to new data from SNL Financial. [TD Bank is
mentioned.]
5. |
|
Carolina Business Review WTVI-TV PBS (NC) |
Chris Williams, Host: [Canada is] clearly our largest trading partner, but also clearly much more
restrictive when it comes to banks and financial institutions, and that has seemed to help them
through this crisis. Their banks seem to be just fine. Has this changed at all the way you that
feel about financial reform? [TD Bank is mentioned.]
6. |
|
U.S. Economic Forecast Remains Overcast SMT Magazine |
Page 1 of 26
The storm has ebbed, but the U.S. economic forecast remains overcast, according to a report
released today by TD Economics. [TD Economics Beata Caranci and James Marple are quoted.]
7. |
|
Vermont Banks, Credit Unions Offer Free Checking Choices But For How Long Times Argus
(VT) |
Consumers may feel like theyre being nickeled and dimed to no end by all kinds of banking fees
from ATM to bounced check fees. But when it comes to free checking accounts at least, Vermont banks
and credit unions offer consumers plenty of choices at least for now. [TD Bank is
mentioned.]
8. |
|
Basel III No Big Deal For LI Banks Long Island Business News (NY) |
Basel III an agreement made last week in Switzerland requiring banks to build up capital ratios
over a period of time will not have much of an effect on Long Island, officials say. [TD
Bank is mentioned.]
9. |
|
Dont Discount TD Ameritrade Barrons.com |
A round of successful acquisitions, a big jump in assets, new synergies with major shareholder
Toronto Dominion Bank the shares havent yet priced in all the good news. [TD Ameritrade is
mentioned.]
10. |
|
Getting Personal Canada: A Direct Route To Overseas Investing The Wall Street Journal |
Canadian investors are now not only more willing to take control of their own accounts, they are
becoming more willing to look beyond their countrys borders. Several online brokerages are making
it easier for them to do so. [TD Waterhouse is mentioned.]
INDUSTRY NEWS
1. |
|
SEC Plan Will Deter, Not Stamp Out, Dressing Up of Banks Quarterly Results American
Banker |
Stop doing what you werent supposed to be doing but may have been doing anyway. And tell everybody
what youre doing in the future.
2. |
|
Bankers Press FDIC for Flexibility, Clarity in Wind-Down Plans American Banker |
Banks are more inclined to plot their expansion than prepare for their demise, but with the Federal
Deposit Insurance Corp. soliciting the industrys help to establish a new resolution unit, charting
their own death is exactly what many large institutions will have to do.
TD BANK NEWS
1. |
|
TD Bank Seeks Top 3 Spot in C. Florida
By Anjali Fluker |
Page 2 of 26
|
|
September 17, 2010 Orlando Business Journal |
Brian Ziemba, 47, has an audacious goal that should put his competitors on notice.
The new Central Florida market president for TD Bank NA, which entered Orlando earlier this spring,
plans to wrest away a large chunk of market share within the next five years, making TD Bank one of
the areas three largest banks. Those top three spots currently are held by SunTrust Bank, Bank of
America and Wachovia Bank, a division of Wells Fargo NA.
Even though the economy has slowed, we see Florida as one of the most attractive opportunities for
growth, said Ziemba, who moved to Vero Beach with his wife and three children last month from New
Jersey.
Among the ways he plans to trump his competitors:
Grow through acquisitions.
Stay open 361 days a year, including Sundays and all but four major holidays, and offer lobby
hours until 8 p.m. two days a week.
Install coin-counting machines in branch lobbies that anyone can use for free.
Offer live customer service via phone 24/7.
We offer banking when our customers want it, said Ziemba.
TD Bank, which in April took over two failed banks with a Central Florida presence, this summer
converted 30 Riverside National Bank and three AmericanFirst Bank branches in metro Orlando. And it
will add another 13 branches in Orange, Osceola and Seminole counties if its acquisition of
Mercantile Banks troubled parent company, The South Financial Group, is approved later this month.
When all is said and done, it will add about 40 new jobs in the region in the coming months.
TD Bank in May announced it signed an agreement to buy Greenville, S.C.-based The South Financial
Group (Nasdaq: TSFG) for $61 million in cash or stock, giving South Financial shareholders either
28 cents or 0.004 shares of TD Bank stock for each of their shares. As part of the agreement, TD
Bank also would pay the U.S. Department of the Treasury $130.6 million to buy the preferred stock
of South Financial the government acquired for $347 million under the Troubled Asset Relief Program
(TARP).
The deal, slated to go before South Financials shareholders at a Sept. 28 meeting, would give TD
Bank 170 branches in Florida, the sixth-most statewide with a little more than $7.1 billion in
Florida deposits, based on FDIC numbers from June 30, 2009. This accelerates our growth in Florida
by five years, said Ziemba.
The bank seeks to snag one of the top three spots among Central Floridas largest banks through
this acquisition and adding new bank branches during the next few years, Ziemba said. Finalizing
the South Financial deal will give it a total of 46 area locations with $1.4 billion in local
deposits, FDIC data showed.
SunTrust led banks in Central Florida with $7.7 billion in local deposits and 75 locations as of
June 30, 2009, while Bank of America posted $6.4 billion in Central Florida deposits and had 71
locations. Wachovia had $5 billion in local deposits and 63 locations.
Though Central Floridas banking industry is always competitive, regardless of who the players are,
SunTrusts Ray Sandhagen said hes pretty confident his bank wont be
Page 3 of 26
unseated easily. Weve been
around a long time and seen a lot of changes, said
Sandhagen, chairman of SunTrust Bank in Central Florida. With the roots we have in this community,
our name recognition and our history of serving our clients with the best products, well continue
to be very strong.
Bank of America executives declined to comment through a spokeswoman, and representatives from
Wachovia couldnt be reached for comment.
Meanwhile, once the South Financial Group deal is finalized, TD Bank will rebrand 13 Central
Florida Mercantile Bank branches by changing the colors, signage, adding a more open floor plan and
refurbishing older branches, Ziemba said. The bank will hire local subcontractors for those
renovations, he said, declining to reveal the cost of doing so, other than to call it a
significant investment.
The bank, which eventually will have a regional headquarters in Winter Park, expects to complete
its Riverside rebranding by the end of this month, while the Mercantile rebranding effort would be
completed by midsummer 2011.
The bank also will incorporate its expanded retail branch hours, going to seven days a week at
Central Florida locations beginning Oct. 3, and staying open until 8 p.m. on Thursdays and Fridays.
In order to do that, the company is hiring about 20 workers lenders, tellers and customer service
representatives in the Orlando area and will add 20 more once the South Financial Group deal is
finalized. Pay for those jobs will range from $8-$10 per hour to about $125,000 per year.
The banks extended hours are just one way it seeks to draw new customers. It also will provide an
array of commercial lending options, including Small Business Administration loans. We have a
strong specialty in health care tax-exempt financing, said Ziemba. Were also interested in
hospitality and real estate, and well do agricultural lending.
Now is a good time for banks to grow, said Jim Gilkeson, associate professor of finance at the
University of Central Florida. Strategically, this is a chance to pick up a core deposit base. If
youve got the funds, this is not a bad time to do this.
Brian Bandell of the South Florida Business Journal, contributed to this story.
TD Bank NA
Total deposits: $129 billion
Bank branches: 1,100, including 46* in Brevard, Lake, Orange, Osceola, Seminole and Volusia
counties
Employees: 22,000
Top local official: Brian Ziemba, Central Florida market president
Contact: (888) 751-9000; www.tdbank.com
|
|
|
* |
|
Pending shareholders approval of the acquisition of Mercantile Bank parent company The South
Financial Group |
Source: TD Bank NA, Yahoo! Finance
What this means to you:
Renovation work for subcontractors at the newly acquired branches
Sunday lobby banking hours will be available.
A new banking option for local businesses
Commercial construction loans will become available as lending teams are built and the market
improves.
Page 4 of 26
Top
2. |
|
The Changing Banking Landscape
By Ina Paiva Cordle |
September 20, 2010 The Miami Herald [A Spanish-language version of this article also ran in
the Miami Heralds sister newspaper, El Nuevo Herald.]
Drive down any commercial boulevard in South Florida, and youll likely encounter an alphabet soup
of relatively new financial institutions: BB&T, TD Bank, PNC Bank and others.
The banking landscape has changed.
The financial industry has undergone major turmoil in recent years as the real estate crisis
deepened and the economy faltered. For banks, that has translated into burgeoning bad loans,
capital depletion, enhanced regulations, numerous bank failures, regulatory takeovers and
acquisitions.
The result is a local market with bulked up big banks, various new out-of-state or foreign
entrants, new ownership for others, lots of troubled banks and a dwindling roster of small
community banks.
Florida leads the nation in bank failures, said Miami-based economist and independent banking
consultant Ken Thomas. We are the bank failure capital of the U.S.
So far, 23 Florida banks have failed this year, following 14 failures last year. Among those in
2010 are South Florida-based banks Premier American Bank, Turnberry Bank, Metro Bank of Dade
County, Bank of Florida-Southeast and Key West Bank.
Florida also leads the nation in the number of formal enforcement orders issued by regulators,
which are part of the pipeline into a bank failure, Thomas said.
In fact, BauerFinancial, an independent rating firm that ranks banks up to five stars, rated 104 of
265 or 39 percent of Florida banks as problem banks 2-stars or below in a report released
this month, based on June 30 financial data.
Its going to be a long recovery period for the South Florida market because we did have such a
dramatic change, in particular with our real estate market, said Karen Dorway, president and
director of research for Coral Gables-based BauerFinancial.
Yet banking regulators emphasize that consumers have not lost one cent because of federal insurance
on deposits. And they say Floridas banking sector will strengthen again.
This is a normal part of a business cycle, said Linda Charity, director of the Division of
Financial Institutions for the Florida Office of Financial Regulation, in Tallahassee. This one
is different because of the duration and the depth of the downturn in the market, but Im very
optimistic for the future.
In the meantime, its a buyers market for Florida banks.
Page 5 of 26
Banking insiders say South Floridas population, wealth, international connections and small
business-based economy are real draws for those institutions with the wherewithal to capitalize on
the market.
In fact, Thomas considers South Florida as one of the five best banking markets in the nation, due
to its rich deposit base, wealth management potential and international banking. The others are
Boston, Dallas, Los Angeles and San Francisco.
Its a fact, Miami has the greatest number of financial institutions in the smallest geographical
area [in Florida], said Alex Sanchez, president and CEO of the Florida Bankers Association.
Its a strong banking area and it has maintained that for years, Sanchez said. The players
have changed, but it has maintained itself as a very strong banking area.
To wit, all four major U.S. banks with more than a trillion dollars in assets now have a foothold
here: Bank of America and Citigroup already operated large South Florida franchises, and JPMorgan
Chase and Wells Fargo recently moved in through acquisitions.
Other major national banks that are ranked among the 15 largest in the nation have recently arrived
in South Florida, such as PNC, TD Bank, BB&T and Regions Financial Corp.
For consumers and businesses, that means lots of banks will be vying for your attention.
Whether its a start-up or a bank that is expanding its reach into Florida, those attempts to
build a customer base and attract customers can provide some favorable account options, said Greg
McBride, senior financial analyst with North Palm Beach-based Bankrate.com.
Expect to see banks open more branches and other newcomers step in.
From the kitchy TD Bank offer lollipops for kids and dog treats for pets to the sophisticated
JP Morgans Private Banking office in Miami courts ultra-high net worth clients, with more
than $25 million in investable assets the playing field is indeed changing.
Its a very competitive market, Thomas said. Competition is the name of the game, and
competition is good for the consumer whether a business or retail customer.
Here are updates on a handful of banks with a presence in South Florida that have undergone major
changes or are new to the area.
BANK OF AMERICA
The Charlotte, N. C.-based bank ranks as the nations largest by assets, and ranks locally, by
deposits, as No. 2 in in Miami-Dade and No. 1 in Broward, according to data from SNL Financial.
Bank of America merged with Merrill Lynch in January 2009, which added financial advisors and an
investment bank, said Gene Schaefer, president-Miami and commercial market executive at Bank of
America.
Page 6 of 26
What that has brought to the table is to be able to deliver the full breadth and depth of banking
services for our clients, Schaefer said.
WACHOVIA BANK
Wells Fargo & Co. acquired Charlotte, N.C.-based Wachovia in December 2008. Wells Fargo, based in
San Francisco, ranks as the fourth largest financial institution in the country by assets, and
locally, by deposits, as No. 1 in Miami-Dade and No. 2 in Broward.
Still carrying the Wachovia name in South Florida, the banks branches will change their name to
Wells Fargo next summer, said Kathryn Dinkin, regional president for Southeast Florida for
Wachovia.
The bank has also changed all its ATMs to Wells Fargo machines, offering new features, such as
multiple languages, including French, Japanese (and Russian in December); allowing deposits of up
to 30 checks without an envelope, and an 8 p.m. cutoff time for deposits, Dinkin said.
Wachovia also now offers insurance products and services, including identity theft protection.
We absolutely are committed to having a smooth conversion, Dinkin said. But we are committed
to every customer walking into the store they walked into two years ago and that they see the same
team members that they saw then.
JPMORGAN CHASE
JPMorgan Chase catapulted its presence in South Florida with its September 2008 purchase of the
failed Washington Mutual, which gave it 233 branches in Florida, including 132 branches in South
Florida (it defines the region as up to Vero Beach).
We had wanted to expand our presence here in Florida, so when that opportunity came about, we
jumped on it right away, said George Acevedo, Chases Miami-based head of South Florida branches.
The bank plans to open at least 20 new South Florida branches each year, over the next few years.
It just opened two branches, in Miami and Homestead.
JPMorgan Chase has doubled its number of personal bankers, business bankers and specialists in
South Florida, and is continuing to hire more, Acevedo said.
At the same time, J.P. Morgan has brought its wealth management operations into a new Miami office.
The bank now handles $21 billion in assets under management in Florida, including about $10 billion
from Latin America, said Alvaro Martinez-Fonts, chief executive of J.P. Morgan Florida, Private
Banking, who is responsible for overseeing the firms wealth management business in the state.
This year alone, the banks total assets under management in Florida has grown by $1.2 billion,
which Martinez-Fonts attributes to the opening of the Miami office. The division has hired 31
professionals in Florida already this year, with the majority in Miami, he said.
Page 7 of 26
By the end of the year, he hopes to hire about 15 more people for the Miami office, which now
employs 100.
BANKUNITED
Perhaps no local bank has undergone as much of a transformation as BankUnited.
A group of investors, including Chairman and CEO John Kanas, purchased the assets of the failed
BankUnited in May 2009, with a $900 million private equity investment.
The bank has since reinvented itself and built a new leadership team, hiring senior executives from
other banks, said Harlan Parrish, senior executive vice president of retail banking for BankUnited,
who spent more than 26 years with Colonial Bank and then BB&T.
Overall, the bank has added 300 new employees in the last 15 months, though its total number of
employees remains unchanged at 1,100.
Any time you change the direction of the bank you have to change some of the people, certainly at
the executive level, Parrish said.
The banks capital position now gives it the stability to make more loans, invest in technology and
offer new products and services, he said.
While the former BankUnited was a savings and loan that primarily made mortgages and funded them
with high-priced time deposits, the new bank is focusing more on small to medium-sized businesses
and checking accounts.
The mix of deposits has changed, from 80 percent time deposits and 20 percent checking deposits at
the time of the acquisition, to about 53 percent time deposits CDs and IRAs, and 47 percent core
deposits checking, saving and money market accounts, Parrish said.
Before the end of the year, the bank plans to open five to eight branches, including relocations
into full-service locations, 15 more in 2011 and 20 in 2012, statewide.
The key thing is to focus on the service side. The key thing is to get better first, Parrish
said. You dont get better by being bigger, you get bigger by being better.
PNC BANK
Pittsburgh-based PNC acquired National City Bank in 2009, which in turn had acquired two Florida
banks in 2007: Fidelity Federal in West Palm Beach and Harbor Federal in Fort Pierce. That gave PNC
110 branches from Orlando down to Broward, said Craig Grant, West Palm Beach-based regional
president for PNC Bank in Florida.
The bank is now embarking on a high-growth strategy in Florida, Grant said. Its viewed as
one of the top growth markets for our company.
PNC also has wealth management offices sprinkled around the state, and corporate banking divisions
in Orlando, West Palm Beach and Fort Lauderdale. PNC does not have branches in Miami-Dade County.
Page 8 of 26
Our primary focus will be Broward, Grant said, with a goal of going from six branches to 25 in
the next two years. If you look at Broward, it has more businesses middle market businesses
that are our target.
BB&T
The Winston-Salem, N.C.-based bank was founded in 1872 by Alpheus Branch, and its name stands for
Branch Banking & Trust.
BB&T expanded its presence in South Florida with the purchase of the failed Colonial Bank in August
2009, which gave it 24 branches in Miami-Dade, 21 in Broward, and additional branches in Palm
Beach, Martin and St. Lucie counties.
We retained almost all of Colonial Banks employees they know the clients and the markets,
said Rob Bowlby, BB&Ts senior vice president and city executive for Miami-Dade County.
BB&T brought with it a wide range of products and services, including wealth management, insurance
and 401(k) plans, he said. Its strategy is to profile every client for capital needs, risk
management, employee benefits, payment solutions and personal financial management.
The bank believes this is going to be one of the most important markets to BB&T as we continue to
grow, Bowlby said of South Florida. Theres a tremendous amount of wealth and it is a
tremendous small business market.
REGIONS BANK
Birmingham, Ala.-based Regions Banks presence in South Florida has developed in a somewhat
circuitous way:
In 1997 Union Planters Bank acquired Capital Bank; in 1998 it bought California Federal Bank
Transflorida Bank and Ready State Bank; in 1999 it bought Republic National Bank; in 2004 Regions
merged with Union Planters, and in 2006 Regions merged with Amsouth.
As a result, Regions now has more than 400 branches in Florida, including 48 in Miami-Dade and 19
in Broward.
Regions is now focused on returning to sustained profitability and then growing, said Steve Nivet,
area president for South Florida for Regions Financial, who is based in Coral Gables.
The diversity in this market makes it very attractive to serve all different clients of
alldifferent nationalities and our associate base reflects that, said Nivet, who is originally
from Trinidad.
We want to lend and help drive and stimulate this economy. We also want to deliver the highest
level of service.
TD BANK
TD Bank , a Delaware-chartered U.S. bank with 1,200 branches from Maine to Florida, is a subsidiary
of Toronto Dominion Bank.
Page 9 of 26
The bank entered Florida through its acquisition of Commercebank in 2005. Since then, it has
grown to 38 branches, said Kevin Gillen, regional president of TD Bank , who is based in Fort
Lauderdale.
Its expansion in Florida has accelerated this year with the purchase of additional banks, including
two that are still pending that will take it to 160 branches in Florida.
Somewhere between 24 and 30 months, were opening another 22 stores in the Miami-Dade/Brow-ard
area, according to Gillen said.
TD Bank is open seven days a week, 361 days a year, he said. The bank offers free worldwide ATMs,
live call centers 24 hours a day, next day availability of funds, same day deposit credit until 8
p.m., and free coin counting, even if you are not a customer, he said.
And it has lollipops, dog treats TD Bank and dog dishes with water.
TD Bank is hiring, and expects to expand in Coral Gables, adding more commercial lenders, private
bankers, wealth investment managers and insurance professionals, Gillen said.
Miami-Dade
is clearly earmarked as our No. 1 growth area in the state of Florida, he said, due to population, density, the fantastic mix between commercial and consumer, a gateway to the
world and a great diverse business mix between healthcare, trade, higher education and small
business.
Top
3. |
|
TD Bank to Install Penny Arcade at Former Riverside Location in Vero Beach
September 17, 2010 TCPalm (FL) |
TD Bank will celebrate the rebranding of all Riverside National Bank locations Sept. 24 with an
installation of its Penny Arcade at the Vero Beach location Monday.
TD Banks regional market manager, Joe Rusnic, will flip the switch of the arcade at 11 a.m. Monday
at 1238 U.S. 1 in Vero Beach.
The TD Bank Penny Arcade is a free, interactive, coin-counting machine.
The coins counted at TD Banks Penny Arcade in a year are enough to fill 6,500 tractor-trailers.
Penny Arcade can count 3,500 coins per minute.
Top
4. |
|
Floridas Bank Failures Prove To Be A Boon To Their Buyers
By John Hielscher
September 20, 2010 Sarasota Herald-Tribune (FL) |
IF THERE IS ONE SURE WAY TO grow a bank in Florida these days, its by taking over a failed bank.
Several bank companies have dramatically boosted their Florida footprints in the past year by
buying failed institutions, according to new data from SNL Financial.
Page 10 of 26
Two banks jumped into Floridas top 10 list, thanks to recent failed bank deals.
BB&T, which a year ago operated the 14th largest bank in Florida, is No. 5 after buying the
collapsed Colonial Bank last year. Winston-Salem, N.C.-based BB&T jumped to $16.4 billion in
deposits from $4.4 billion.
Toronto-Dominion Bank, which ranked No. 40 in Florida a year ago, is now in 10th place after adding
$6.5 billion in deposits. TD Bank bought three failed banks the largest, Riverside National of
Fort Pierce, added $3.4 billion and it also is acquiring the teetering South Financial Group,
whose holdings included Mercantile Bank of Tampa.
IberiaBank, which bought the failed Century Bank of Sarasota and Orion Bank of Naples, made the
biggest jump, vaulting from 215th to 20th place after adding nearly $3 billion in deposits.
EverBank Financial of Jacksonville boosted its deposit base by more than $1 billion last month
after taking over three failed Bank of Florida units. But it wasnt enough to move it out of 11th
place among Florida banks.
Floridas deposit market remains dominated by Bank of America, with $72.7 billion; Wells Fargo &
Co., $64.2 billion; and SunTrust Bank, $39.9 billion. Those three hold a combined 45 percent market
share of the states deposits.
Iberiabanks oil spill exposure
IberiaBank was prompted last week to reassure investors about its potential exposure to the
devastating Deepwater Horizon oil spill.
Iberiabank Corp., based in Lafayette, La., lends to some of the businesses and industries that will
be affected most by the spreading oil spill in the Gulf of Mexico.
The company said it has a very small exposure to the fishing and seafood, tourism and energy
industries, the three sectors hit hardest by the spill now and likely in the future. Energy and
energy-transportation related loans total $183 million, or 3 percent of all loans. Exposure to the
fishing and seafood industries is less than $10,000. The company reported no loans to seasonal
beach tourist businesses.
Most of IberiaBanks Florida offices and loans are in the southwestern, southeastern and
northeastern regions all unaffected, so far, by the spill. Nearly all the loans picked up from
Century and Orion are covered by a Federal Deposit Insurance Corp. loss-share agreement five
years for commercial loans and 10 years for residential loans.
After reviewing the companys statement, analysts at Raymond James Equity Research reiterated their
strong buy rating on Iberiabanks stock.
While it is difficult to assess the longer-term economic impact, both direct and secondary, of the
oil spill, the company appears relatively unaffected, analyst Michael Rose said.
New Orleans-based Whitney Bank, which has offices in Manatee County, also said it is monitoring the
oil spill for any potential impact. A spokesman said it is too early to gauge any impact on its
business or customers.
Page 11 of 26
Adamson joins Stearns
Paul Adamson has joined Stearns Bank in Sarasota as senior banking officer.
He has 15 years of consumer and commercial banking experience, previously with Whitney Bank and
SouthTrust Bank.
Sabal bump
Sabal Palm Bank in Sarasota got a bump up from analyst BauerFinancial Inc. last week.
Bauer had initially rated Sabal Palm a one-star, or troubled, bank based on its first quarter
numbers.
Bank president Brian Hall says he informed the analyst that Sabal Palm had raised about $1 million
in new capital in April. We sold it ourselves, to friends and family, he said.
Bauer considered that and upped Sabal Palm to a two-star, or problematic, bank, Bauer president
Karen Dorway said.
Sabal Palm posted a $101,000 loss in the first quarter. The $95 million-asset bank remains well
capitalized under regulatory standards.
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Carolina Business Review
September 17, 2010 WTVI-TV PBS (NC) |
Chris Williams, Host: [Canada is] clearly our largest trading partner, but also clearly much more
restrictive when it comes to banks and financial institutions, and that has seemed to help them
through this crisis. Their banks seem to be just fine. Has this changed at all the way you that
feel about financial reform?
David Wilkins, Former U.S. Ambassador to Canada: Well, it certainly has made the Canadian financial
institutions much stronger. When I arrived in Canada in June05, the talk around the table was, you
know, Canadian banks arent very creative and theyre only regulated and there are five major banks
and theyre consolidated. The minister of trade, if he needs to have a banking policy, he just need
to have dinner with five CEOs and reach an agreement. But they didnt have the housing bubble and
they didnt have the subprime mortgage problems. Theyre the only G20 country that didnt receive a
bailout from their government.
And so now people in Canada are saying, you know were pretty smart. Our banking system is superior
and look at what weve done. As a result, the banks like TD Bank and RBC Bank are now some of the
top 20 banks, you know, in the world and TD Bank just made its presence in South Carolina by
acquiring Carolina First, and will continue, and I think the Canadian banks will continue to grow
in the United States. As a result of them being global, more fiscal conservative than our banks
were, in Canada, you dont have the urge for everybody to go get a house and everybody put a
mortgage to the hills on it. You cant deduct your mortgage interest in that and when you buy a
boat, you dont put a mortgage
Page 12 of 26
on your house. Thats silly. They just havent had the housing problem, subprime problem that we
have had as a result. Their banks are doing much better generally than ours.
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U.S. Economic Forecast Remains Overcast
September 17, 2010 SMT Magazine |
The storm has ebbed, but the U.S. economic forecast remains overcast, according to a report
released today by TD Economics.
We dont expect to see any miracles occurring over the next several months but the evidence
appears to be for the gradual unwind of imbalances and a continued slow pick-up in economic
activity and not another descent into recession, write Deputy Chief Economist Beata Caranci and
Senior Economist James Marple in TD Economics latest U.S. Quarterly Economic Forecast report.
Noting that bad economic news tends to make headlines, the authors highlight the positive economic
developments of recent months and present a case for guarded optimism with respect to the economys
nascent recovery. Private domestic demand the key ingredient to a sustained expansion has seen
a strong burst of activity of late, fueled by a 17.6 percent annualized increase in business
investment. This would not have been possible without some thawing of credit markets. Signs that
credit conditions are easing, especially for small businesses, are encouraging, as they suggest
that monetary stimulus is getting through to the real economy.
While there is a case for optimism, what we really strive for is realism, and it is true that the
bears of this world have not had major difficulty finding reasons to be negative, the authors
write.
Growth in domestic demand has slowed in the current quarter, and will likely continue to slow as
business investment comes off its initial growth spurt and home sales decline in the aftermath of
the expired homebuyers tax credit. Just as important, job growth, while consistently positive in
2010, has also been sluggish. In a recession and recovery characterized by private-sector
deleveraging, a slow improvement in personal income growth will act as a natural constraint on
private demand growth.
The recovery will continue to present challenges for policymakers, who face an electorate weary of
record deficits and big bailouts. While economic growth will continue to be positive, it is not
likely to grow fast enough to bring down the unemployment rate in the near term. On the fiscal
front, any new stimulus measures must be balanced against the need to bring down budget deficits in
the future. For the Federal Reserve, the main option for further stimulus is an even greater
expansion of its balance sheet, which could complicate the removal of stimulus once economic
conditions normalize. Indeed, neither the politicians nor the monetary authorities are in an
enviable position. In all likelihood, economic growth will continue to improve and stimulus will be
gradually withdrawn. However, with so little margin of error between positive and negative growth,
policymakers will stand ready to step in with greater stimulus should it be warranted.
Page 13 of 26
TD Economics notes that with corporate profits rebounding and credit conditions easing, the most
likely scenario is for a continued pace of economic expansion of 1.9 percent in 2011 and 2.6
percent in 2012.
About TD Economics
TD Economics provides analysis of global economic performance and forecasting, and is an affiliate
of TD Bank, Americas Most Convenient Bank®.
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Vermont Banks, Credit Unions Offer Free Checking Choices But For How Long
By Bruce Edwards
September 20, 2010 Times Argus (VT) |
Consumers may feel like theyre being nickeled and dimed to no end by all kinds of banking fees
from ATM to bounced check fees. But when it comes to free checking accounts at least, Vermont banks
and credit unions offer consumers plenty of choices at least for now.
Unknown, is whether the new financial reform laws put in place to curb abuses will force banks and
credit unions to raise fees to make up the difference.
There are five banks in the state that offer free basic checking with no monthly fees, no minimum
balance and unlimited check writing and ATM transactions, according to the most recent quarterly
report from the state Department of Banking Insurance, Securities and Health Care Administration.
Banks listed that offer free basic checking are Brattleboro Savings and Loan, Community National
Bank, Ledyard National Bank, Merchants Bank and Peoples Trust of St. Albans.
No information was listed for Berkshire Bank but its website says it offers free basic checking
with no minimum balance.
On the other end of the spectrum, it costs more to maintain a checking account at TD Bank than any
other bank in the state. Fees for a basic checking account at TD Bank add up to $48.80 a year.
In calculating the annual cost of a checking account, the Banking Division assumes a customer
writes eight checks a month, does not maintain a minimum balance and makes four proprietary ATM
deposits and 15 withdrawals per month.
TD Bank does not require a minimum balance, but charges a fee of $3 a month. Basic checking account
customers are limited to a total of eight free transactions a month.
Rebecca Acevedo, a spokeswoman for TD Bank, said their basic checking account is used primarily by
customers who have a savings account and write few checks each month. She said the majority of
customers opt for the banks convenience checking product. The bank waives the minimum $100
balance for the first year. After the first year, the penalty
Page 14 of 26
for falling below the minimum balance is $15 in any month. But Acevedo said most customers never
fall below the $100 minimum balance.
Returned check fees at Vermont banks range from a low of $20 to $39 per check.
State law requires banks but not credit unions to file a quarterly report on basic checking account
fees.
Deputy Banking Commissioner Thomas Candon said basic checking fees at the states banks have
declined from an average of $30.32 a year in 1997 to $16.16 at the end of the second quarter this
year.
Candon, however, said hes concerned that in the aftermath of financial regulatory reform, fees
could go higher.
I am concerned that both the overdraft fee regulations, and also the interchange fee thats being
looked at, may cause the banks to look to checking account fees as a possible alternative, Candon
said, referring to new laws that limit those fees.
With 14 branches in northern Vermont, Community National Bank is one of five banks that offer free
basic checking.
In confirming Candons concerns, Community National Bank President Steve Marsh said while its in
the best interest of his customers, free checking may be in jeopardy.
All the new regulations that are coming down as we speak ... its going to reduce some of our fee
streams and well have to get that money back somewhere, so it might be service charges Marsh
said.
The head of the organization representing Vermonts 27 credit unions said most offer no fee basic
checking. A survey of the seven largest credit unions found that four of those credit unions offer
basic checking with interest, said Joseph Bergeron, president of the Association of Vermont Credit
Unions.
I havent heard any credit unions imposing a limited number of transactions on their checking
accounts or any monthly fees of any sort, Bergeron said.
But Bergeron also warned that the ripple effect from the new financial reform legislation is
largely unknown.
Credit unions and community banks are already stretched by shouldering negative consequences
stemming from practices of much, much larger financial entities elsewhere in the country, which in
large part brought about the need for such financial reforms, Bergeron said in an e-mail. To the
extent that new regulations cause financial hardship on local financial institutions, expect to see
possible industry-wide increases in rates and fees to offset those negative financial regulatory
effects in order to continue to provide the same level of services consumers demand.
In its 2009 annual survey, the American Bankers Association reported that the majority of bank
customers continue to pay nothing in bank fees.
Page 15 of 26
The survey found that 56 percent paid no monthly fees; 14 percent paid $3 or less; 13 percent paid
$10 or more; 6 percent paid between $4 and $6; and 3 percent paid between $7 to $9.
A 2009 Bankrate Inc., national survey found that the monthly service charge for basic or
non-interest bearing checking accounts hit a new low of $1.77. Additionally, Bankrate found that 76
percent of basic checking accounts are free with no minimum balance, up from 73 percent in 2008.
However, when it comes to interest bearing checking accounts, the survey found those fees had
risen to an all-time high including bounced check fees, ATM surcharges and monthly service fees.
In 2009, bounced check fees nationwide averaged $29.58 while monthly service charges averaged
$12.55, up 5 percent from a year earlier.
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Basel III No Big Deal For LI Banks
By Jessica DiNapoli
September 17, 2010 Long Island Business News (NY) |
Basel III an agreement made last week in Switzerland requiring banks to build up capital ratios
over a period of time will not have much of an effect on Long Island, officials say.
The agreement made last week requires banks with more than $10 billion in assets to hold 7 percent
of their assets in capital by 2019 w.
Most of Long Islands banks do not meet the $10 billion threshold, and one that does, the $42
billion New York Community Bank, headquartered in Westbury, is already capitalized beyond the 7
percent level, said CEO Joe Ficalora.
We are a very well-capitalized, high-liquidity, high-earning, low-loss bank, Ficalora said.
Were different from the banks theyre looking at. Large banks have less capital than the small
banks in the best and worst of times.
TD Bank, which has 32 branches in Nassau and Suffolk counties according to an online map, will have
to abide by the international agreements rules.
It applies to banks of a certain size and it applies to us, said TD Bank spokesperson Jennifer
Morneau.
Morneau said TD Bank, headquartered in Toronto, Canada, has $153 billion in assets. She declined to
comment on what the bank would do to comply with the rules.
While the small banks do not have to comply with the Basel III rules, there may be some
trickle-down effects that work in their favor.
Douglas Ian Shaw, the corporate secretary for Suffolk County National Bank, said his financial
institution only has $1.7 billion in assets. He said smaller banks like his may have a competitive
advantage. He explained that the big banks will have to make up the revenue they have to put away
as capital to meet requirements, which could alter pricing on certain products and services.
Page 16 of 26
It may or may not be an opportunity for smaller banks, who also wish to be well-capitalized as
well over long run, Shaw said.
Joe Perri, CEO of Gold Coast Bank in Islandia, thinks Basel III will definitely be an opportunity
for small banks to do more business.
The big banks become more preoccupied with what theyre doing and to satisfy what the Basel III
directives are, Perri said. It always restricts them and makes the competitive environment that
much easier for the small banks.
Because the capital requirements do not become official until 2019, only time will tell if they
actually have an effect, said Doug Manditch, CEO of Empire National Bank in Islandia. Manditch
tends to think the Basel III requirements will end up being a non-event because many big American
banks already hold 7 percent of its assets in capital.
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Dont Discount TD Ameritrade
By Sandra Ward
September 18, 2010 Barrons.com |
A round of successful acquisitions, a big jump in assets, new synergies with major shareholder
Toronto Dominion Bank the shares havent yet priced in all the good news.
HARD TO BELIEVE AMID ALL THE hand-wringing about the direction of the economy and the markets, but
day trading is alive and well.
A healthy number of individuals continue to indulge a passion for buying and selling stocks, and
options and futures on those stocks, on a daily basis, in spite of the continued exodus from
actively managed stock mutual funds and intensified interest in bond investments. For proof of
these animal spirits, look no further than TD Ameritrade. A leader in online brokerage services
based in Omaha, Neb., its clients placed a record 413,000 trades a day in the firms fiscal third
quarter, ended June.
Daily trading volume dropped during the summer months, as is typical for the season. But the
seasonal drop was exacerbated this year amid renewed fears of a global slowdown brought into sharp
relief by continued high unemployment, European debt troubles and looming financial reforms in the
U.S. Nonetheless, the impact was softened by strong net inflows of new assets. TD Ameritrade
continued to rake in new assets at a pace exceeding the firms yearly target range of 7% to 11%.
Indeed, the firm collected net new assets of $28 billion in the year through June 30, a 12%
annualized rate of growth and up 32% from the first nine months of 2009. It now has a total of $324
billion in client assets.
TD Ameritrade appears to be benefiting as investors migrate from the big investment firms to a more
self-directed approach to their portfolios, trading for their own account or enlisting the aid of a
financial advisor, many of whom use TD Ameritrade as a platform for client accounts. The firm is
also gaining from the breakaway broker phenomenon, as more and more brokers are choosing to
operate independently as registered investment advisors and using TD Ameritrade for their back
office needs. A sales force whose compensation is linked to bringing in new assets also has made a
big difference.
Page 17 of 26
The companys strong relationship with its 45% stakeholder and triple-A-rated Toronto Dominion Bank
(TD.Canada) has also bolstered its asset-gathering efforts. And its 2009 acquisition of thinkorswim
Group, the leader in the profitable and fast-growing options-trading arena (Barrons has named
thinkorswim the No. 1 online broker two years in a row, and in four of the past five years), puts
more capabilities into the hands of its big base of active traders and provides other customers
with important tools for better managing their money. And thinkorswim is just the latest in a long
line of acquisitions that TD Ameritrade has successfully integrated into its operations.
TD Ameritrade has taken itself beyond its role as simply a discount broker by offering an expanded
line of wealth-management services that appeals to a wider audience, as suggested by the
improvement in its ability to boost assets under management.
Reflecting this growth in assets, the company is on track to deliver earnings gains of 19% in
fiscal 2011 and nearly 30% in fiscal 2012 based on consensus earnings estimates of $1.21 a share
for next year and $1.56 the next. Yet, the company isnt getting a lot of credit for this increase,
and thats resulted in a wide gap between its expected growth and its stock price: TD Ameritrade
shares sport a P/E multiple of just 12.8 times fiscal 2011 estimates and 9.9 times 2012. Charles
Schwab (SCHW), in contrast, trades at 25 times this years expected earnings and 15.3 times 2011
consensus estimates.
ASSET MANAGERS TYPICALLY TRADE at a 20% to 40% premium to the market multiple. TD Ameritrade
wouldnt command the full premium because of its discount brokerage, but its fans argue a higher
multiple is warranted.
Its valuation also overlooks a clean balance sheet, a recently authorized 30-million-share stock
buyback program (it expects to purchase 12 million shares between now and the middle of November),
the possibility of a dividend payout and the potential for a big earnings impact once interest
rates begin to rise. Indeed, a 25-basis-point increase in the fed-funds rate would be the
equivalent of a seven-cent rise in annual earnings.
They have extraordinary leverage to interest rates, says Mac Sykes, a brokerage analyst at
Gabelli & Co. He considers the stock attractively priced at current levels based on its normalized
earnings growth, operating leverage from economies of scale and positive impact from increases in
interest rateswidely seen as occurring by the end of next year. Sykes puts a private market value
of $24 on the shares, based on a multiple of nine times his enterprise value to Ebitda estimate of
$1.4 billion in 2011. It currently trades at 6.2 times EV/Ebitda.
Morgan Stanleys Celeste Mellet Brown recently reiterated an Overweight rating on TD Ameritrade
shares after hosting a dinner meeting with management Sept. 7. She cited outsized growth in net new
assets, upside potential from a rise in interest rates, the likelihood of return of capital to
shareholders and a stock price at bargain levels. Brown attaches a price target of $25 to the
shares, which would represent a 61% gain from the current $15.50.
TD Ameritrade has $63 billion in interest-sensitive assets, of which $42 billion is in
higher-yielding insured deposit accounts with Canadas Toronto Dominion Bank. Low interest rates
have been a problem for all financial institutions and theres no question they are hurting TD
Ameritrades net interest margin and, in turn, operating margins.
Page 18 of 26
But the firm is less interest-rate-sensitive than most, including the granddaddy of all discount
brokers, Charles Schwab. About 52% of TD Ameritrades revenues came from trading in 2009, compared
with 24% for Schwab, which has more customers in interest-bearing accounts (TD Ameritrade has just
launched a new service aimed at futures traders, see The Electronic Investor, Futures Are the New
Options). The near zero fed-funds rate has led Schwab to waive fees associated with its
money-market funds to keep the funds yield from slipping into negative territory. Schwab also said
last week it will take a charge of $130 million in the third quarter to cover losses in its
money-market funds related to a defaulted investment.
Another potential catalyst to move TD Ameritrade shares higher is the option Toronto Dominion Bank
has to buy the rest of the shares it doesnt already own under a shareholder agreement inked in
2006, when Dominions U.S. brokerage business, TD Waterhouse, merged with Ameritrade. Under the
agreement, which runs through January 2016, its ownership is capped at 45% between now and 2016 but
allows for the bank to make a tender or merger offer for the remaining shares prior to the
agreements end.
TD Bank (TD) hasnt commented on its intentions except to say it is happy with its ownership of TD
Ameritrade. But it is instructive to note that it bought a stake in the former BankNorth in 2004
and integrated some operations before eventually buying the rest of the bank in 2007. Yet, TD Bank
is important to TD Ameritrades future in other ways. TD Ameritrade plans to tap into the 1,300
branches the bank operates on the East Coast, making its brokerage servicestrading, investing and
advisingavailable to the banks customers.
A precursor of this plan has been in place on Sixth Avenue in Manhattan, where a TD Bank branch and
a TD Ameritrade branch sit cater-cornered to each other and refer clients to each others products.
Did somebody say animal spirits?
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Getting Personal Canada: A Direct Route To Overseas Investing
By Monica Gutschi
September 20, 2010 The Wall Street Journal |
Canadian investors are now not only more willing to take control of their own accounts, they are
becoming more willing to look beyond their countrys borders. Several online brokerages are making
it easier for them to do so.
Canadas largest direct brokerage, TD Waterhouse, is the latest to unveil a global trading
platform, giving Canadian investors 24-hour access to 10 foreign markets and the ability to hold
securities in foreign currencies. It joins much smaller Interactive Brokers and HSBCs InvestDirect
in offering the service.
For years, weve been telling Canadians that they should invest outside their market, but not
giving them the options to do so, says John See, president of TD Waterhouse. He says the platform
was created due to demand from clients who did hold international equities in their portfolios but
faced significant transaction costs and wanted greater access to other markets.
Page 19 of 26
The budding interest in global investing is partly due to recent events, which have highlighted the
interconnectedness of national economies and markets, as well as the increased concentration of the
Canadian market due to mergers, and the strength of the Canadian dollar, which gives Canadian
investors more purchasing power.
It also comes amid a boom in online investing in Canada. According to Investor Economics, the
number of trades executed by online brokers rose to 47.2 million in 2009 compared with 36 million
in 2008; meanwhile, there were 44.3 million trades executed in the full-service channel compared
with 37.6 million a year earlier.
As Canadians become more active traders, theyre always looking for trading opportunities, says
Jeff Wojcicki, a senior analyst with the financial consultancy. Theres only so many opportunities
in the Canadian market and even the U.S. market. There may be interest in the larger volatility in
overseas markets they can take advantage of.
Richard Kelln, president of HSBC InvestDirect, said the brokerage had offered investors access to
the Hong Kong exchange for years, but added three European exchanges in 2008 as it monitored its
clients activities.
As clients become more specialized and learn more about countries around world, people became more
interested in investing in the companies themselves rather than mutual funds, he says. Customer
response to the service has so far exceeded expectations, he said, and were fully expecting it
to continue to be a big growth part of our business.
Canadian investors have always had a number of ways to invest globally: there are international
mutual funds and exchange-traded funds, as well as country-specific funds or the American
Depositary Receipts of many large, foreign-owned corporations that trade on the New York Stock
Exchange.
But when it came to directly investing in a foreign market using foreign currency, the options were
more limited. Most brokerage offered little access to foreign exchanges and any transaction
incurred significant fees and currency charges.
TD Waterhouse appears to have addressed some of those restrictions. With its global platform,
investors can settle trades in seven currencies and continue to hold securities in those
currencies. The brokerage plans to charge a flat fee per transaction.
Those factors should make it attractive to investors, says Alex Draghici, a senior analyst with
Dalbar, a financial-services consultancy.
Investors know exactly how much they will pay on a trade, regardless of the quantity or security
price, he says, and there are no hidden charges like administration fees.
But it may be hard for TD Waterhouse to offer the same depth and breadth of information about
foreign securities as Canadian brokerages are doing for domestic companies, he notes. This is
quite difficult to accomplish with companies from other parts of the world, with different
regulations with respect to data disclosure and different systems of data delivery, Draghici says.
Currency hedging is another potential problem.
Still, he expects other bank-owned brokerages to closely monitor TD Waterhouses success, and
potentially join the club.
Page 20 of 26
There is a palpable feeling in the air that as Canadian investors become more in tune with the
global marketplace, discount brokers in Canada need to offer global trading access, he says.
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INDUSTRY NEWS
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SEC Plan Will Deter, Not Stamp Out, Dressing Up of Banks Quarterly Results
By Jeff Horwitz
September 20, 2010 American Banker |
Stop doing what you werent supposed to be doing but may have been doing anyway. And tell everybody
what youre doing in the future.
This is a loose summary of what a Securities and Exchange Commission proposal on Friday would
mandate for banks engaged in short-term funding transactions designed to obscure quarter-end
leverage.
It will lead to heightened disclosure surrounding some important risk gauges a burden that,
depending on the final details, could motivate banks to avoid some types of short-term financing.
But few expect that its ultimate interpretation would be so onerous as to goad banking companies
into marshaling all-out opposition.
The commission went out of its way to say that it did not view such transactions as inherently
bad, said Michael Scanlon, a partner in Gibson Dunn & Crutchers financial services practice in
Washington. But given the extent of disclosure that will be required around intraperiod financing,
it could disincentivize firms from using some of those tools.
Some of the industrys harsher critics on financial reporting matters raised doubts as to the
ultimate efficacy of a rule, though they welcomed the prospect of greater disclosure. And even some
of the SEC commissioners who approved the proposal suggested that it wasnt an ironclad obstacle to
gussying up complicated financial balance sheets.
Financial institutions will continue to look for the new repo 105, Commissioner Luis Aguilar said
in brief comments before a unanimous vote, referring to a type of transaction that the now-defunct
Lehman Brothers Inc., and other institutions, used to blur the extent of their leverage. What are
the consequences for those that dress up balance sheets? Rules on the books are not enough.
The proposal would prohibit banks from entering into finance agreements solely designed to mask
their financial position. It also would require banks to reveal both their maximum and average
assets, in addition to their period-end assets, each quarter. Elements of the proposal could apply
to nonfinancial firms as well.
A growing number of analysts, regulators, and industry players have concluded that widespread
gaming of risk limits and disclosure rules contributed to the financial crisis but did not die
with it. By temporarily parking bank assets off balance sheet, with the help of trading partners,
companies like Lehman managed to obscure the degree of risk they had taken on, rendering them more
vulnerable to stress than they appeared.
Page 21 of 26
More recently, major commercial banking companies drew scrutiny for using different tactics for
reducing their assets shortly before quarter end. Companies like Bank of America Corp. and
Citigroup Inc. consistently reported average assets each quarter well in excess of their
quarter-end balance. After press reports of the discrepancy, and an SEC review, Citi disclosed that
it had misclassified more than $9 billion in repo loans and Bank of America reported that an
internal control error had caused it to book certain transactions as sales rather than loans.
Both companies maintained that they had appropriately presented their financials to investors,
however. And Bank of America said that the misclassification was purely an accounting issue, which
did not affect their Tier 1 capital ratio nor their appropriate implementation of end-of-quarter
leverage restrictions.
I would say that our trading desks have both period-end limits and average limits, said B of A
spokesman Jerry Dubrowski. Its their decision to increase [positions], knowing they have to
conform to it at the end of the quarter. You cant stray too far from the center.
Bank of America is reviewing the SECs proposal, but does not yet wish to comment on it, Dubrowski
said.
If rigorous enough, said Francine McKenna, an accounting consultant who blogs at re: The Auditors,
the disclosure the proposal would require might yield more clues as to how banks are managing their
balance sheets.
Any investigator knows its better to ask an open-ended question, she said. Instead of saying,
Do you do repo 105? you ask them how theyre financing assets and if they change that on a
quarter-end basis.
A broad scope for the rule coupled with fast, public and company-specific enforcement is
essential to restoring integrity to financial accounting, McKenna said.
But McKenna said she expected companies would seek to shift the eventual implementation of the
proposal toward prohibitions of concrete acts leaving them maximum wiggle room on short-term
financing matters. Banks want the rules to be specific, and they want their advisers to help them
get around them, she said.
Scanlon, meanwhile, said it was hard to judge whether a rule like the SECs proposal would have
prevented Lehmanesque balance sheet management. But the rule could potentially change some
institutional behavior if it tamps down the flexibility of short-term financing vehicles that has
appealed to banks, he said.
The proposal may be more about addressing a mismatch between SEC and regulatory reporting than such
grand topics, he said. The way the SECs disclosure rules are set up has historically been focused
on the picture at the end of the period, he said. What bank regulators have looked at is, what
are the averages through the period. Thats what this proposal is doing bringing in some of that
to [the SEC rules] to give more than just one snapshot.
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Bankers Press FDIC for Flexibility, Clarity in Wind-Down Plans
By Joe Adler
September 20, 2010 American Banker |
Banks are more inclined to plot their expansion than prepare for their demise, but with the Federal
Deposit Insurance Corp. soliciting the industrys help to establish a new resolution unit, charting
their own death is exactly what many large institutions will have to do.
In early conversations highlighted by last months FDIC roundtable on the topic, executives
appeared willing to help the agency devise the new wind-down system but also pressed the agency on
their own concerns, including how flexible regulators will allow resolution plans to be, the level
of certainty creditors will receive in a failure scenario and any potential for future resolution
planning to hurt current profitability.
Who is excited about planning their own death, especially organizations that in theory think
theyre going to be perpetual? said Robert Litan, a senior fellow at the Brookings Institution and
research chief at the Kauffman Foundation. Unlike people, who already know theyre going to die,
companies think theyre going to live forever. To plan the demise of a perpetual company is sort of
like running against nature. But the reason theyve got to do it is we know who comes to the rescue
in case they fail.
At issue are new powers the FDIC gained under the Dodd-Frank law to clean up large bank holding
companies and nonbanks that the government deems too systemically important to be unwound by the
bankruptcy system. The lack of a resolution system in 2008 is blamed for much of the turmoil that
came with the failures of giants like Bear Stearns and Lehman Brothers.
The agency is expected to unveil a rule implementing the new system soon. Along with the Federal
Reserve Board, the FDIC also must set standards for a giant firm to complete its own living will
essentially a plan detailing how to unwind the firms various business lines without causing a
systemic problem.
This resolution authority can work best if we have on the shelf a resolution plan that can be used
in a very short time frame, FDIC Chairman Sheila Bair said at the meeting.
But so far at least, the FDIC does not want to just come up with rules of the road on its own.
Instead, the agency is seeking industry input even as companies try to get an idea of what the new
system will look like.
Everybody quite legitimately is trying to grope toward a solution, said Gary Gorton, a Yale
finance professor who participated in the agencys Aug. 31 roundtable.
He said the meeting showed that firms were all interested in We dont want to have to do anything
too complicated, and we dont know what were supposed to do, please tell us. The regulators were
We dont know what to do, either, please tell us.
Executives at the meeting urged the FDIC to provide as much certainty as possible about what
creditors of a failed bank holding company or systemically important nonbank firm will get from a
receivership. That question is relatively well understood in the case of individual bank takeovers,
in which insured depositors are covered but most other creditors are wiped out.
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But the process is unclear for holding companies. Although the FDIC has said the process for
nonbanks will be similar to the priority used in bankruptcy courts, executives said any uncertainty
about the order of claims will have harmful effects.
Providing a degree of certainty to the market around creditor rights is probably the single most
important thing that you could do just in terms of the impact it will have on funding, Hamid
Bigliari, a vice chairman at Citigroup Inc., said at the forum.
But while they want certainty for investors, bankers also urged regulators not to force them to
draft living wills that are too rigid, and do not allow for differences for institutions during
economic cycles.
The diversity of the people around this table demonstrates that youve got to make sure the regs
are flexible enough to allow you and your other colleagues ... to be able to figure out how to
craft the right living will [and] resolution [plan] on a firm-by-firm basis, said Barry Zubrow,
the chief risk officer for JPMorgan Chase & Co.
John Wright, the chief regulatory counsel at Wells Fargo & Co., agreed. For example, he said, it
would not make sense for all systemically important firms to have to incorporate international
operations into their wind-down plans.
We dont have a lot of international operations. Were pretty simple from an operational
standpoint, Wright said. In terms of principles, we agree with a lot that was said here, but when
you come down to the actual requirements, if it could be more of a dialogue up front so that each
organization is able to tell its story and not be expected to fall into a particular mold.
FDIC officials signaled that implementation of the resolution provisions could contain a mix of
specificity to provide certainty where needed and a level of ambiguity. Theoretically there
could be a blend between regulations and some type of policies, if you will. Regulations to
provide clarity. Policies to provide the ability to adapt, said Michael Krimminger, Bairs deputy
for policy, who moderated the roundtable.
He said the crafting of the rules will likely be an iterative process with the industry because
theres no way that we could define a resolution plan, and we think theres probably no way that
the firms could define a resolution plan without talking to us.
Its going to be very important to have good feedback loops with the marketplace, Krimminger
said.
Other topics at the meeting included how much of a failed company the FDIC would potentially need
to place in a bridge firm, which the agency would keep operating in the interest of preventing a
systemic effect on other institutions, and then sell off down the road.
Some observers said if there is another crisis, the FDIC may need to move more into the bridge firm
than less.
Its not immediately clear what significant part of one of the firms wouldnt be moved. If its,
say, a clearing house, the whole things going to have to be moved, Gorton said at the meeting. He
added later, You want to distinguish between a resolution when were not in a crisis from a
resolution when we are in a crisis.
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Bair countered that tighter regulations on companies resulting from the new law may make the
failure of a systemically important institution in the future more of an isolated event, relieving
some pressure on the FDIC about the risks facing other institutions.
I am not so sure ... we would have a systemic failure only when theres a broader crisis going
on, Bair said. History has said that there can be some very badly managed institutions when the
overall system is not that bad off.
In a true crisis situation, Bair said, regulators now have tools at their disposal to prevent
systemic fallout other than preserving individual institutions, including the Feds so-called
13(3) authority to provide support across the system, and the FDICs ability to get Capitol Hill
approval to guarantee the industrys debt in an emergency.
I am operating under the theory that, yes, there will be another cycle and, yes, there will be
another downturn, Bair said. The kind of cataclysm we just faced, I dont think its going to
I hope its not going to happen again.
But executives also sounded concern about the inconsistency between preparing ones company for a
hypothetical resolution and aiming for higher profits.
One obstacle is the very significant difference in priorities between sometimes what we think our
shareholders want to protect shareholder value, and what we need to do to keep the banking system
running in an efficient way and avoid systemic risks, said Art Certosimo, an executive vice
president at Bank of New York Mellon Corp.
As a result of planning a living will, many firms may have to think about creating a simpler
structure with clearer lines between entities underneath the holding company.
I dont think we would suggest that everything needs to be brought down to the simplest level
possible, Krimminger said. Certainly the needs and the risks that are created by the
interconnections and the complexity clearly have to be considered if youre going to have a
credible plan. ... Its a healthy thing to look at: are there complexities or interconnections
that may even impair business efficiency while also creating additional systemic risk?
But participants at the FDIC meeting said that may be out of whack with a firms goals in healthy
times.
Managing something thats easily broken apart just for planning for what happens in the case of a
resolution is not necessarily good for business, said Phil Wertz, an associate general counsel at
Bank of America Corp. Having 20 legal-entity silos that dont talk to one another and can easily
be broken apart ... defeats the purpose of having the cross-selling and integration of a large
financial firm. ... Hopefully were not going to be driven purely by resolution as driving
everything during the good times, planning for it obviously, but not making business decisions that
ultimately are contrary both to the company and to the system.
Several participants, including Wertz, emphasized the importance of remediation plans another
requirement of the law, which forces firms to plot how they would recover to health in a distressed
climate along with resolution plans.
Observers said planning for ones death is an easier exercise for a person to stomach than a
financial institution. It might sound nice in terms of an individual, where youre thinking
Page 25 of 26
about: Death is inevitable. Therefore you want to make sure your heirs get assets, William
Longbrake, the executive in residence at the University of Marylands Smith School of Business and
a former vice chairman at Washington Mutual Inc., said in an interview. In the case of a
corporation, thats not the way you think. You dont think about failing. You think about being
successful.
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