Toronto-Dominion Bank is taking the long view when it comes to U.S. expansion plans.
Case in point: Tuesday's announcement that the second-largest Canadian bank
The deal for Cowen, an independent broker, offers two capabilities that TD covets — an established U.S. equity sales and trading platform and a global research platform, said Glenn Gibson, vice chair and regional head of TD Securities, the investment banking arm of TD.
TD has been expanding its capital markets business for years, and U.S. equities and research were some of "the last pillars" necessary to make it a full-service business line, Gibson said. So it made sense to pursue a deal now to accelerate growth.
"These opportunities, whether they come along in frothy times or softer times, what's important is that we're adding to our capabilities for the long term," Gibson said in an interview Tuesday. "We're committed to the U.S."
With Cowen, TD is set to add 1,700 employees to its TD Securities roster, which currently includes about 5,000 employees. Of those 1,700, about 300 are managing directors, TD said.
After the acquisition, which is expected to close during the first quarter of 2023, Cowen CEO Jeff Solomon will become part of the senior leadership team at TD Securities and will report to Riaz Ahmed, who is president and CEO of TD Securities, the two companies said in a press release.
Within three years, the deal is expected to yield "revenue synergies" of between $300 million and $350 million, according to TD. Pretax integration and retention costs are projected to total $450 million, including $200 million tied to the retention of Cowen's leadership team and other "key individuals" at the firm, TD said.
To pay for the Cowen deal, TD sold 28.4 million nonvoting common shares in Charles Schwab for proceeds of about $1.9 billion. The sale reduced TD's ownership interest in Schwab from 13.4% to 12%, but it did not change TD's strategy around the investment, executives said.
TD's latest acquisition deal comes less than six months after it
But there has been some pushback on the proposed tie-up amid heightened scrutiny of bank mergers. Last month, Sen. Elizabeth Warren, D-Mass., and other lawmakers
In a letter, the Democratic lawmakers cited a May 4 report by Capitol Forum that found TD used similar employee incentives as those that contributed to the fake-accounts scandal at Wells Fargo.
TD executives originally targeted a fall 2022 closing date, and on Tuesday they reiterated that timetable.
"We obviously cannot talk about our conversations with our regulators, but feel comfortable that [it] is proceeding at the pace we expected and we are hoping that we can close it" as planned, CEO Bharat Masrani said during a call with analysts to discuss the Cowen deal.
Democratic Sen. Elizabeth Warren cited a report that found then-acting Comptroller Keith Noreika chose to privately reprimand the Canadian bank for consumer abuses, rather than issuing a fine.
That TD is pushing forward with a separate transaction while still awaiting a green light on First Horizon should signal good news for the latter deal, said Ebrahim Poonawala, an analyst at Bank of America Securities.
"If they saw any significant red flags" with First Horizon, "why would they have announced another deal if the first wasn't going as planned?" Poonawala said in an interview Tuesday.
Some analysts were curious about how TD will manage two pending deals at once. Paul Holden, an analyst at CIBC World Markets, wanted to know if TD's management team will be "stretched," given that the two transactions are expected to close around the same time.
TD executives said they don't foresee difficulties. The Cowen deal "is more about capabilities that are additive," Masrani said.
"This is not about taking synergies out or building out different types of platforms," he added. "We feel very comfortable … to proceed on the basis we've outlined."
