August 16, 2011 / 7:19 PM / 7 years ago

Analysis: Canadian financials see opportunity in crisis

TORONTO (Reuters) - While U.S. and European financial institutions brace for another economic slowdown, Canadian firms are noticing the familiar scent of opportunity.

With strong balance sheets and encouraged by a relatively robust domestic economy, Canada’s banks, insurers, and asset managers are on the lookout for appealing assets that may be shaken loose by financial uncertainty.

Toronto-Dominion Bank agreed on Monday to buy Bank of America Corp’s $8.6 billion Canadian credit card portfolio, as the U.S. bank tries to rebuild its battered capital base to comply with Basel III capital rules.

Analysts and executives see similar opportunities popping up in coming months as troubled financial institutions sell subsidiaries to strengthen balance sheets.

“One man’s waste is another man’s treasure,” said Edward Jones analyst Craig Fehr, who sees opportunities to “pick up some assets that just don’t make sense going forward for other banks or financial institutions.”

Canada’s banks had a low global profile prior to the 2008 financial crisis, but have gained considerable status and clout since then, helped by strong balance sheets and a fortress-like position in a protected domestic market.

None of the country’s lenders required a government bailout, and as U.S. and European banks struggled to recover, the Canadians feasted on discarded assets.

TD purchased troubled U.S. lender South Financial last year and recently closed a $6.3 billion purchase of Chrysler Financial. It continues to expand what is now one of the largest U.S. branch bank networks.

Bank of Montreal, Canada’s fourth-biggest bank, bought U.S. midwest bank Marshall & Ilsley Corp for $4.1 billion, while No. 3 lender Bank of Nova Scotia has bulked up its Latin American presence and is expected to continue to do so when opportunities arise.

Royal Bank of Canada, the country’s biggest bank, has been building its investment bank and wants to add to its wealth management presence in Europe, although it recently sold its troubled U.S. retail bank franchise.

The big Canadian banks now rank among North America’s largest.


Canadian insurers, asset managers and brokerages also seem primed get into the game, thanks to stronger financial positions than they had three years ago.

“I think Europe is going to go on sale,” Don Guloien, Chief Executive of Canadian insurer Manulife Financial said on a conference call last week, when asked whether the insurer was looking for acquisitions.

Manulife rival Sun Life Financial, which is active in Canada, the United States and Asia, is also seeking acquisitions, while asset manager CI Financial could spend as much as C$1 billion on acquisitions in Canada and the United States, the company’s chairman said.

“Whenever there’s a correction like we’re facing today, it definitely creates opportunities,” said Stephen MacPhail.

Stepping outside Canada’s borders has become a necessity for financial players looking for growth, as years of consolidation left a domestic market dominated by a select few Canadian names.

Five major banks dominate most facets of financial services and have been prevented from merging with each other by the federal government, forcing them to look overseas. On the insurance side, three big players rule the sector.

Foreign players, which at times have tried to push in to the Canadian market, have struggled to find traction, and many have withdrawn.

Bank of America’s sale of the credit card portfolio follows Citigroup’s sale last year of its $2 billion Canadian MasterCard business to Canadian Imperial Bank of Commerce.

Equity markets have recovered somewhat from the double-digit percentage losses suffered in late July and early August, but stocks are still down sharply on the year and sluggish U.S. and European growth could offer opportunities.

“They have arguably stronger balance sheets than they had before, said Robert Sedran, a bank analyst at CIBC.

“The opportunity’s still there if this develops into something more severe for them to be buyers.”

($1=$0.98 Canadian)

Editing by Janet Guttsman

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