Toronto-Dominion Bank chief executive Bharat Masrani said he was still interested in a major acquisition to add to the company’s U.S. retail operations and was not baffled by the recent surge in valuations of regional lenders who would be his most likely targets.
“When it comes to major mergers and acquisitions in the United States, we are very open,” Masrani said in an interview on Wednesday, on the eve of the bank’s annual meeting. “If we can find an opportunity that meets all of our criteria, we will look at it very seriously, and our capital gives us that flexibility.”
Toronto-Dominion built up capital at the start of the COVID-19 pandemic in North America, but government stimulus programs in the United States and Canada have prevented the expected wave of consumer defaults. That left the bank about $ 12 billion ($ 9.6 billion) in capital beyond what it would need to maintain the 11% ratio of Tier 1 common stocks that banks typically target. This gives Toronto-Dominion the financial capacity for a major acquisition.
So far, however, the bank has only entered into minor deals, including the resumption of the Canadian direct equipment financing business of Wells Fargo & Co. and the purchase of a quantitative trading transaction of fixed income 15 people in the United States.
While speculation was that Toronto-Dominion would use the pandemic disruption to strike a deal similar to those used to build its operations in the United States during the global financial crisis, months have passed without an announcement. In the meantime, the KBW Regional Banking Index of 50 companies has more than doubled in the past 12 months, pulling many potential targets out of bargain territory. Toronto-Dominion shares jumped 45 percent over the same period.
Still, the rebound in bank stocks is not an obstacle to a deal, said Masrani, whose bank had 1,223 branches in the United States at the end of its last fiscal quarter.
“A seller always feels that valuations aren’t high enough, and as a buyer we always think they’re on top,” Masrani said. “But there are always opportunities. This is what makes the markets.
Toronto-Dominion rebounded quickly from the COVID shock, increasing its fiscal fourth quarter earnings even from pre-pandemic times, and accelerating that growth in the three months through January. With the Canadian and U.S. economies poised to experience strong growth this year as vaccines roll out and economies open up, Masrani said he is now focusing on Toronto-Dominion playing a role in ensuring that the recovery includes marginalized groups who have been disproportionately affected by the pandemic.
Masrani at the bank’s annual meeting on Thursday highlighted the $ 130 million the bank provided to community groups last year “to help create a more inclusive future.” He also announced an additional donation of $ 5 million under the TD Community Resilience Initiative to help organizations cope with the impacts of the pandemic on “vulnerable and racialized communities.”
Address the issues
“It’s a great lesson learned here, that by working together we can do a lot better and start to address some of these fundamental issues,” Masrani said in the interview. Many communities “were disadvantaged to begin with, and the pandemic actually made it worse, so this is an opportunity to say, ‘How can we have more inclusive growth?
Toronto-Dominion was not directly exposed to the implosion of Archegos Capital Management, he said. Banks such as Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo have ditched multi-billion dollar blocks of shares to recoup the capital loaned to the hedge fund.
“We’re proud to say that we don’t make bad loans in good times so that we can make good loans in bad times,” said Masrani, who previously served as Toronto’s chief risk officer. Dominion. “This is an important attribute within the bank.