A TD Canada Trust branch is seen in the financial district in Toronto on Jan. 28, 2013.MARK BLINCH/Reuters
National Bank of Canada's purchase of Toronto-Dominion Bank's institutional services business is one of those rare deals when everyone understands the logic and praises the transaction as smart business.
TD's rival business will slide nicely into its fold because National already operates its robust Correspondent Network, which provides back office services to smaller retail brokerages such as MGI Securities. The deal also beefs up National's exposure to business outside Quebec, an area the bank has targeted as key focus for the next few years.
The deal could also help National's capital markets arm. While the Correspondent Network does a lot of back office work, the independents who are a part of the network also get access to the equity offerings that National Bank Financial helps to underwrite.
That very fact ties directly into National's wealth strategy. "We always said that wealth management at NBC is mainly distribution," Luc Paiement, executive vice-president of wealth management, said on a conference call.
TD, meanwhile, gets some cash up front – something the bank was clearly looking for, considering TD started the talks.
"This as a win-win deal for both banks," noted Desjardins Securities analyst Michael Goldberg.
In exchange for paying TD $250-million in cash, National will add roughly 130,000 client accounts and $34-billion in assets under administration. And National already has a leg up in understanding what these clients need. Pat Primerano, now the head of the Correspondent Network, used to run this very business at TD.
Before the deal, National already had 350,000 client accounts and about $50-billion in assets under administration.
The deal does come with small consequences for National, most notably that it will take a few basis points off the bank's capital levels. However, National still expects to meet the 8-per-cent minimum common equity threshold after the acquisition closes.
The country's sixth-largest bank will also have to put its share buyback on hold in the immediate future.
Although National's Correspondent Network is "very profitable" for the bank, according to Barclays Capital analyst John Aiken, the deal is only expected to boost 2014 expected earnings by less than 2 per cent.
(Tim Kiladze is a Globe and Mail banking reporter.)
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