Deal Positions Toronto Dominion To Challenge Schwab in U.S. Brokerage

Canada's Toronto Dominion Bank is looking to take on U.S. discounter Charles Schwab & Co.

Just two weeks ago, TD Bank extended its U.S. brokerage reach with a deal to buy California-based Kennedy Cabot & Co. for a reported $155 million. After the deal closes at the end of the year, Kennedy Cabot would become a subsidiary of Waterhouse Investor Services, the New York-based broker TD Bank bought last year.

The resulting operation would have 117 branches, putting it in the same league as the Quick & Reilly Group-the discount broker that Fleet Financial Group agreed to buy for $1.6 billion last month.

It would also give the Canadian bank the wherewithal it needs to go head-to-head with Charles Schwab.

"I think Schwab is the one you have to be benchmarking against," said Duncan Gibson, executive vice president of wealth management at Toronto Dominion. "They're a very successful firm."

The Canadian bank is not a new player to the discount business. It has operated a successful brokerage subsidiary, Green Line Investments, on its home ground since 1984.

Green Line enjoys a 60% to 70% share of the Canadian discount brokerage market, said Nigel Dally, an equity analyst at Morgan Stanley Dean Witter. At a time when U.S. banks are trying to penetrate the brokerage business, TD Bank should be able to bring that success to bear on the U.S. market, he said.

"I would definitely consider them a viable contender," Mr. Dally said. He noted that Smart Money magazine voted Waterhouse the top discount broker-beating both Schwab and Quick & Reilly-in its annual survey in July. Schwab placed third while Quick & Reilly placed eighth.

The Kennedy Cabot deal brings 15 new branch offices to Waterhouse, all but one of them in California. The bank, however, has some way to go to catch-up with the ubiquitous Schwab, which has 265 branches around the country, 12 of which were added this year.

Meanwhile, with 800 funds, Waterhouse's no-transaction fee fund mart lags Schwab's OneSource mart, which boasts 1,400 funds.

Toronto Dominion's Mr. Gibson is realistic about the competition. San Francisco-based Schwab's advertising dollars give the firm "a higher recognition" than Waterhouse, he noted. But Mr. Gibson also said Waterhouse can take on Schwab with the products and services it provides.

The bank is currently looking at ways to develop Waterhouse's mart, including coining its own trademark name, said Mr. Gibson. TD Bank is also mulling a marketing campaign to tout its presence in the U.S., which would continue to focus on the Waterhouse and Kennedy Cabot franchises, he said.

"We have not changed our identity at all in the U.S.," he said. Waterhouse has already run ads on cable channels like CNBC, noted Mr. Gibson.

"TD is not a household name in the States; we're not a retail force like we are in Canada," noted Mr. Gibson. Green Line has 34 branch offices and 900 bank branches across the border.

Meanwhile, the bank hopes to expand its U.S. brokerage presence to 200 branch offices by 2000. "We believe that a branch network is very important; clients come there to open accounts and they come there to discuss problems," Mr. Gibson said.

Though the branch network is a "key component" of its strategy, Waterhouse is also an active player in the business of on-line trading, noted Mr. Gibson.

The firm has 250,000 customers who use its on-line trading capabilities, said Frank Petrilli, president of Waterhouse. The addition of Kennedy Cabot would give the firm access to many more potential on-line accounts, he noted.

Waterhouse's on-line trading fees are at $12 for up to 5,000-share market orders, which puts them in line with several U.S. discounters that slashed their fees last week. Quick & Reilly, Fidelity Investments, and Ameritrade Inc. all cut their Internet trading fees to between $12 and $14.95 for market orders.

"They just moved closer to us," noted Mr. Gibson.

And TD Bank is casting its net beyond the United States. In recent weeks, it has opened a Green Line/Waterhouse presence in London; TD also has presences in the Pacific Rim.

Green Line has an office in Hong Kong, and TD last year bought Australian discount broker Pont Securities.

Right now, those offices are set up to allow people living in those locations access to Canadian and U.S. markets. But, noted Mr. Gibson, they are there "with the view that we eventually want to move toward local trading."

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