With cutthroat competition at home, U.S. financial services companies are turning northward-to Canada-as the next frontier for growth.

They are offering everything from mutual funds to commercial loans to credit cards, hoping to cash in on Canada's closeness and similarity to home.

As mortgage giant Countrywide Credit Industries plots its global expansion strategy, Canada fairly leaps off the map.

"The proximity is certainly attractive," says managing director Richard Lewis. "It was one of the obvious first choices to study."

A number of companies already have planted their flags. From card powerhouse MBNA Corp. to fund titans Fidelity Investments and Franklin Resources, the companies are reeling in customers from Newfoundland to British Columbia.

The leading banks in Canada are clearly taking notice. Bank of Montreal chairman Matthew Barrett, unveiling his company's merger agreement with Royal Bank of Canada on Monday, cited "a swelling tide of new entrants" as a factor in the decision to create "a world-class" Canadian alternative.

"I'm flattered that they would assign us such an important role, but we are just contributing to the healthy competition there," said Marc Bernstein, a senior vice president at Wells Fargo & Co. who is leading the San Francisco banking company's small-business lending push in Canada.

U.S. executives like David Spartin, an MBNA vice chairman, say they see a clear affinity with the Canadian market.

"It's a natural extension of our business of marketing to people with strong common interests," Mr. Spartin.

To date, Canada's Big Six banks still have very much of a lock on their home turf. But that has been changing swiftly as rivals step up their marketing efforts.

Using a tactic first employed in the United States, Wells Fargo last year began pursuing small-business customers in Canada by mailing loans applications to entrepreneurs there. Wells, which has no offices in Canada, mails one-page applications for credit lines from $15,000 to $75,000 and uses credit scoring to make loan decisions in 48 hours.

"Our Canadian lending program has been very successful," said Mr. Bernstein. "There is continued opportunity because the needs of small businesses there have not been well met."

One of the biggest sources of concern to Canadian bankers has been the sharp inroads made by U.S. mutual funds.

Canadian fund assets have soared from $40 billion at the beginning of the decade to more than $300 billion. U.S. institutions hold a big chunk of that market, including Franklin Resources, with more than $11 billion under management, and Fidelity Investments, with $9 billion.

"Canada is very much a market of opportunity in financial services," said Dan Geraci, executive vice president of Fidelity Canada Ltd.

While fund companies like Franklin and Fidelity are already threats to Canadian banks, companies with more powerful distribution networks would present an even stronger challenge if they entered the market, said Lou Harvey, president of Dalbar, a Boston-based consulting firm.

"If Merrill Lynch decided to put their foot in Canada, that would challenge Royal Bank and their system even more dramatically," Mr. Harvey said.

Credit card companies also see opportunity in Canada. Since receiving its bank charter last month, MBNA Canada, a subsidiary of MBNA America Bank of Wilmington, Del., has started issuing cards and has completed one solicitation mailing.

Meanwhile it is wooing several affinity groups, many of whose U.S. counterparts have agreements with the issuer. MBNA has announced a deal with Ducks Unlimited Canada, an environmental group, and extended its pact with the National Hockey League to cover Canadian teams.

MBNA hopes to duplicate its success in the United Kingdom, where it has made a splash by capturing 8% of the market since opening shop in late 1993, with 500 affinity groups signed up.

By focusing on affinity groups "they're selecting a customer that is very much like their target customer, whom they know exceptionally well," Ms. Roth said.

One of MBNA's rivals, Capital One Financial Corp. of Falls Church, Va., is also venturing north. Capital One has been mailing credit solicitations to Canada for about a year, said Sam Wang, a company spokesman.

"We are leveraging the strength we have had in the U.S.," Mr. Wang said. Now we are "marketing and testing that philosophy in Canada."

The strategies of the credit card specialists should pay off, said James Shanahan, a partner at Business Dynamics Consulting Inc. of Newark, Del.

"If they can go over to these countries and apply generally the same principles," he said, "they can wreak a lot of havoc in the market."

Competition is also looming in still another area-mortgage lending.

Countrywide, one of the few American mortgage lenders looking to establish a global presence, has for some time been looking at Canada as a possible new market.

However, analysts pointed out that though Canada would be a good place for Countrywide to start its foreign push, there are major differences between the two housing markets.

For one, the 30-year fixed-rate mortgage doesn't exist in Canada. And there are no companies analogous to Fannie Mae and Freddie Mac, the U.S. government-sponsored agencies that buy mortgages and assume credit risk.

But analysts added that this won't be too much of a challenge for a company such as Countrywide to overcome.

"With the expertise and systems Countrywide has in place, their business would be easibly translatable to Canada," said E. Gareth Plank, an analyst with UBS Securities.

The threat of foreign competition will become even more real if, as expected, Canada's Parliament moves at the end of this year to revise Canada's banking laws by allowing foreign banks to operate in Canada via branches rather than through separately capitalized subsidiaries.

Two banks, Comerica Inc. and BankAmerica Corp., have already publicly indicated they plan to take advantage of changes in Canadian legislation.

"It's definitely going to make it easier for foreigners to compete in Canada," said A. Roy Palmer, a banking analyst with TD Securities Inc.

Analysts are careful to note that changes to Canada's banking laws are still at least 12 months away-and they say the country's big banks are unlikely to face any significant competition in retail or corporate banking even if entry barriers to foreign banks are eased. But Canadian banks could be vulnerable in nontraditional banking businesses, such as securities underwriting, asset management, and private banking.

"Over the last several years, Canadian banks have tried to maintain earnings momentum by getting into new areas, " said John Otis, a director at Fitch IBCA Inc. "But their skills are very modest compared to many international players'."

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