Wary of acquisitions, Canadian banks emphasize organic growth in U.S.

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Having put down roots in Chicago with its $5 billion acquisition of PrivateBancorp last year, Canadian Imperial Bank of Commerce is now looking to make inroads into other U.S. markets.

On a conference call this week to discuss its most recent quarterly results, CEO Victor Dodig said that the $455 billion-asset CIBC had recently launched a new high-yield digital savings account that he described as “the first step in building out our retail offering for clients in the U.S.”

CIBC is counting on the new savings account to help boost revenues in the U.S., which have been relatively flat since the deal for PrivateBank closed in June, and pick up the slack for the sudden slowdown in mortgage lending in Canada as the country has toughened mortgage qualification rules out of concern that the housing market is overheating.

Other Canadian banks eager to boost market share in U.S. are also emphasizing organic growth because they view acquisitions as being too expensive.

TD Bank, the U.S. unit of the $1 trillion-asset Toronto Dominion Bank Group, is adding front-line staff in key business lines, building up its small-business banking capabilities, and launching a new mortgage and home equity platform aimed at delivering faster turnaround times on loan decisions, CEO Bharat Masrani said on an earnings call with analysts Thursday.

Royal Bank of Canada, the parent of City National Bank in Los Angeles, is continuing to build out its capital markets business here and is looking to beef up its retail banking presence largely by hiring teams of bankers.

The $993 billion-asset RBC bought City National in late 2015 and has recently taken the franchise into new markets, including Minneapolis, Washington, D.C., and Northern California. CFO Rod Bolger said the company plans to focus mainly on building market share in those areas before setting up shop in new cities.

“We did expand into more new markets last year than we had in recent years, so it might make sense to further expand in those markets than to try to be too small in too many markets,” he said.

CIBC, meanwhile, has rolled out a national advertising campaign for its Agility savings account, which carries an interest rate of 1.65% and can be opened with a minimum balance of $1,000. It is primarily targeting consumers in markets where CIBC Bank USA has no retail branches, particularly those in Florida and California.

Canadian banks are flush with capital — capital ratios at the six largest banks are at their highest levels since 2013, according to an analysis by Bloomberg — and could certainly afford to bulk up quickly in the U.S. through acquisitions. But Meny Grauman, managing director at Cormark Securities in Ontario, said that organic growth makes more sense right now because sellers’ asking prices are too high.

“There’s definitely an interest in utilizing their existing platforms to their utmost and to try to generate as much deposit funding and the relationships that come with that,” he said.

Indeed, both Bolger and Masrani said that they will remain on the sidelines for the foreseeable future.

“The U.S. banks are quite pricey right now, so I don’t know that there’s an acquisition in the short term for us,” Bolger said.

TD in recent years has acquired credit card portfolios, and in 2017 it bought Scottrade Financial Services, but it has not made a whole-bank acquisition since 2010, when it bought Carolina First Bank.

TD could be interested in another acquisition, and it sees the Southeast as an attractive market for another deal, Masrani said on a conference call Thursday. Florida would be an especially nice fit for TD Bank, given that many of its Northeast customers vacation there, he said.

However, Masrani was quick to add: “But values will be an important consideration for us. Not only do they have to fit strategically, they have to make financial sense.”

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