A proposed accounting change in Canada could put its banks in a stronger position to make U.S. acquisitions, but observers said initial targets are most likely to be nonbanks.

The Canadian Office of the Superintendent of Financial Institutions wants to liberalize pooling-of-interest accounting, currently allowed only in mergers of equals.

Canadian bankers and analysts said the upshot could be a more acquisitive posture toward the United States, with securities, insurance, and mutual fund companies more likely than commercial banks to be targets.

The proposed pooling-of-interest rule, which could take effect by Nov. 1 after a comment period, stems from the pressure that has been building on Canadian regulators to yield to the worldwide consolidation wave.

"This would remove one of the major obstacles to cross-border mergers," said Dan Marinangeli, chief financial officer at Toronto-Dominion Bank.

As U.S. financial institutions have been pairing up with increasing frequency, Canadian bankers complained that accounting restraints left them at a disadvantage.

Under the current purchase accounting standard, the goodwill in a transaction-the excess of a company's purchase price over its book value- must be written off over a number of years. In poolings of interest, common in U.S. bank mergers, the amortization can be avoided, making the transactions less costly.

Hugh M. Brown, a banking analyst with Nesbitt Burns in Toronto, said from a safety-and-soundness standpoint "it would be preferable if everyone moved to our (purchase accounting) standards, but it doesn't look like it's going to happen soon.

"Meanwhile there is a deal a day, and it's increasingly unfair for Canadian banks not to have a level playing field."

Mr. Marinangeli of Toronto-Dominion concurred with the view that U.S. commercial banks are not in the Canadians' primary sights. He said his bank is more inclined to add to its Waterhouse Securities discount brokerage operation or perhaps buy an asset management firm.

Analysts said they would not expect an accounting change to spark deals right away.

The two pending Canadian megamergers-Toronto-Dominion with Canadian Imperial Bank of Commerce, and Royal Bank of Canada with Bank of Montreal- plus the weakness of the Canadian dollar seen as deterring further big moves.

With the exception of Bank of Montreal, which owns Harris Bankcorp of Chicago, and an Internet banking foray by Royal Bank, the Canadians have focused mainly on corporate and investment banking in the United States.

Peter Currie, chief financial officer at Royal Bank, did not foreclose the possibility it would be interested in a U.S. banking company.

"A conventional bank in the U.S. could be very attractive to us," Mr. Currie said. "If our government were to step in and say no (to the pending mergers), then I'd say it's a whole new ball game out there."

Analysts said purchase accounting could also accelerate mergers within Canada.

"Mergers among 'unequals' would become more attractive to Canadian banks, and acquisitions of other financial institutions at prices well above book value would also be much more attractive," said A. Roy Palmer, a banking analyst with TD Securities Inc.

"It is unfortunate that a level playing field did not exist years ago when U.S. banks were more affordable," he said. "But at least we can say, 'Better late than never.'"

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