PNC, Fifth Third Add to U.S. Banks' Growth in Canada

ab030314canada.jpg

Regional banks in the U.S. are casting a longing glance north of the border.

From Pittsburgh's PNC Financial Services Group (PNC) to Fifth Third Bancorp (FITB) in Cincinnati, some American banks are plotting out growth plans in Canada, the world's 11th-largest economy. The strategy comes amid the slow recovery in many of the banks' U.S. markets.

While its population is only a fraction of the U.S., the Canadian market presents some enticing opportunities, observers say. Canada's banking sector wasn't hit as hard as that in the U.S. during the recent financial crisis. And Canada's five largest banks have posted strong profits this month.

"There is so much cross-border work going on. It's a very healthy market," says Dan Zabludowski, an attorney with Hinshaw & Culbertson and a member of the Canadian-American Chamber of Commerce. "We were surprised … how active the American banks are being in the Canadian economy."

Canada's banking laws impose broad restrictions on foreign banks' ability to conduct retail banking business in the country. U.S. banks have focused on commercial lending, treasury management and other business services as a result.

There are plenty of active lending markets in different sections of the country, Zabludowski says. Those include oil production in the provinces of Alberta and Saskatchewan, and construction and commercial real estate in Toronto and Vancouver.

The Office of the Superintendent of Financial Institutions Canada declined to make someone available for an interview.

The country's top five domestic banks control the vast majority of the Canadian market, meaning customers there might be interested in having more banks to choose from, says Frank Gonzalez, a principal in the auditing department at MBAF.

The biggest opportunity for U.S. banks is in offering investment services, insurance and other products not historically sold by Canada's banks. Although regulations allow Canadian banks to offer those products now, American banks have more experience in those areas, Gonzalez says.

PNC in February said it received regulatory approval to expand commercial banking in Canada. PNC held about $1.4 billion in assets in Canada, as of Dec. 31, according to Canada's Office of the Superintendent of Financial Institutions. It ranked No. 9 among U.S. banks operating there; the largest are the big Wall Street players. (See related graphic)

PNC has offices in Toronto, Montreal, Vancouver and Calgary.

Bill Hines, PNC's principal officer in Canada, pointed out that the country is the top market for U.S. exports. As the bank's clients expand in Canada, PNC must follow them there, he said. Hines was not available to answer additional questions, such as whether PNC plans to open offices in additional cities.

Fifth Third now has five employees at its lone Canadian office in Toronto, and it projects that number doubling over the next 18 months, says Mauro Spagnolo, managing director of Fifth Third's Canadian office. The growth will come from serving U.S. clients that do business in Canada, as well as picking up new Canada-based clients, he says.

"We've been in Canada a fairly long period of time, and it does represent a positive and interesting market for us," says Peter Mack, senior vice president and managing director of global transaction banking at Fifth Third.

Fifth Third also plans to participate in financing projects with the large Canadian banks, Spagnolo says. That's essential since the five big banks in Canada control about three-quarters of the syndicated-loan market.

It was No. 12 among U.S. banks in Canada at Dec. 31, with about $500 million in assets there.

Other banks, including Wells Fargo (WFC) and TCF Financial (TCB), have expanded in Canada in recent years, in diverse business lines including treasury management and inventory finance.

Canada's biggest banks have reported record profits this month, as they benefit from the relative strength of the country's economy. Toronto-Dominion Bank (TD), the largest Canadian bank, on Thursday reported higher fourth-quarter revenue from trading, wholesale banking and Canadian retail banking. Canadian Imperial Bank of Commerce (CM), the No. 5 bank in Canada, also on Thursday posted record fiscal first quarter profit on consumer and business-banking earnings.

But for American banks to take advantage of the favorable conditions, they must get regulatory clearance first, which can take time in Canada, Gonzalez says. After expansion plans are approved, however, the regulatory environment is probably less-tricky to navigate in Canada than the U.S., because it only has federal banking regulators, and no state-level regulators, he says.

"Not saying that it's easier in Canada, but it's probably more efficient," Gonzalez says.

For reprint and licensing requests for this article, click here.
Consumer banking Community banking
MORE FROM AMERICAN BANKER