Rebuffed last year in its attempt to merge with one of its nationwide commercial bank competitors, Toronto-Dominion Bank is trying a different route.

The $134 billion-asset institution said Tuesday that it agreed to buy CT Financial Services, the parent of Canada Trust, from British American Tobacco PLC. Toronto-Dominion agreed to pay $5.3 billion in cash for the $32 billion-asset "near bank."

The deal, which must be approved by regulators, would create a bank with 10 million customers in Canada and the largest total of personal loans. The combined company would also be Canada's second-largest mutual fund manager and residential lender.

Toronto-Dominion showed its eagerness to bolster its competitive position in Canada when it sought to merge with the country's largest bank, $173.8 billion-asset Canadian Imperial Bank of Commerce. The government, which also rejected $168.9 billion-asset Royal Bank of Canada's bid to merge with $146.1 billion-asset Bank of Montreal, objected on antitrust grounds.

The merger with CT Financial would move Toronto-Dominion up one place, to third, in the Canadian asset standings.

"Obviously, a merger with CIBC would have been far more significant, but Toronto-Dominion's acquisition of CT is a good strategic fit," said Glen Grabelsky, a Canadian bank analyst at the credit rating agency Fitch IBCA in New York.

CT Financial's Canada Trust has a business profile similar to savings and loan associations in the United States. It has 429 branches across Canada and 12,000 employees.

Once the companies are combined, the merged institution would have 1,340 branches and about 39,000 employees, after about 4,900 jobs are eliminated.

The merged bank would have $22.5 billion of personal loans and $19.2 billion of funds under management.

The combined retail unit would take the name TD Canada Trust.

For several years, Toronto-Dominion has been focusing on strengthening its corporate banking position across North America. It has made a strong play in the discount brokerage business through its acquisition of New York-based Waterhouse Investor Services Inc., now TD Waterhouse. That was one of several selective moves by major Canadian banks into the U.S. consumer market.

The major Canadian banks have been emphasizing the consumer side more. CIBC said earlier this year that it would scale back its efforts to build a North American investment banking business and focus on retail banking in Canada.

Royal Bank of Canada also is concentrating on wealth management and retail and Internet-based banking, in part through its acquisition of Security First Network Bank in Atlanta. Bank of Nova Scotia spent $1.7 billion to buy National Trustco Inc. in 1997.

"They have all established the fact that they want to commit more resources to retail," said Mr. Grabelsky. "TD trailed the other Canadian banks" in that regard.

Analysts doubt that the proposed merger will run into antitrust problems, though - like the disapproved bank deals - it must be vetted by the Competition Bureau, the Office of the Superintendent of Financial Institutions, and the finance ministry.

A. Charles Baillie, Toronto-Dominion's chairman and chief executive officer, said bank officers met with finance ministry officials and regulators before the announcement and were led to believe the deal would be approved.

Mr. Baillie said the acquisition will not significantly reduce the number of competitors in Canadian financial markets. "Canadians will continue to see a wide range and number of competitors, including five major banks," he said, adding that many other nonbanks also are competing.

The transaction is expected to close in February 2000.

Edmund Clark, the president and chief executive officer of CT Financial Services, would be a Toronto-Dominion vice chairman and chairman and CEO of TD Canada Trust.

Robert P. Kelly, vice chairman of retail banking at Toronto-Dominion, would become group vice chairman.

Toronto-Dominion expects to incur one-time, pretax integration-related charges of $313 million, to be booked in the quarter in which the transaction closes.

The reduction of 4,900 out of nearly 44,000 total positions would occur over a three-year integration period. Some 275 branches are expected to be closed.

The acquisition is expected to be accretive to earnings nominally during the first year, 11% in the second year, and 15% in the third.

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