Betting on the jockey is working at TD Bank
The gloves came off this week in the rarefied air that bank CEOs operate in. It was subtle, of course, which befits the setting. But as fighting words go, they were undeniable when they were uttered on Tuesday by Ed Clark, CEO of TD Bank (TD:TSX): “We are North America’s Bank”.
Local aficionados may recognize that phrase. It’s a well worn one. In 1994 and ’95, BMO’s then Chairman and CEO Matt Barrett gave many a public speech with that as the title. Audiences in New York, Dublin and Montreal all had the pleasure of hearing Canada’s Cary Grant on the topic of BMO as North America’s Bank. At the time, BMO had a relatively large investment in Illinois with Harris Bank, and a very strategic investment in Mexico’s Bancomer. No other Canadian bank of the day could hold a candle to that heft on the North American continent.
What a difference a decade makes.
Drive around Charlotte, N.C. today and you’ll see RBC’s “Leo the Lion” on RBC Centura retail outlets. Take a ferry to tony Martha’s Vineyard, off the Massachusetts coast, and the last bank branch you’ll see before leaving the dock is one owned by TD Bank.
With the announcement of TD’s $8.5 billion deal for Commerce Bank, Mr. Clark has leapfrogged his local competitors with the cunning use of three essential tools: a strong Canadian dollar, a high relative valuation, and a trusting and supportive bank board.
To adopt Mr. Barrett’s own tagline, and claim the mantle for himself, Mr. Clark is pounding his chest in a way that we’re not used to seeing among bank bosses. It isn’t quite prize fight night on WWE, but this is a sea change in how aggressive certain Canadian banks want to be seen. And get used to it.
In an interview with the Globe & Mail, Mr. Clark poo-pooed growth through domestic mergers. His memory is a bit fuzzy. TD Bank’s watershed move was to acquire Mr. Clark’s former employer, Canada Trust, barely 18 months after former Finance Minister Paul Martin told CIBC they couldn’t grab CT for themselves. When Mr. Clark says “Anybody who tells you they got there because they’re smart is stupid. You get there ‘cause you’re lucky, that’s the real world”, he knows of what he speaks.
If CIBC had been allowed to acquire CT at the outset, Mr. Clark would have found himself ensnared in a series of messes at CIBC: from Global Crossings to Enron to SEC investigations.
Mr. Clark’s aggressiveness is his calling card, and it is something that TD has always seemed uniquely comfortable with, while not wearing the label on their lapels in the same way as CIBC had done when former CEO John Hunkin ruled the roost, for example.
Under former CEO Dick Thompson and President Robin Korthals, the 1980s TD Bank built a very successful specialty in U.S. cable and telecom firms. While other Big-5 banks were fighting over long-standing local accounts, such as Eatons, Seagram, Molson and the Montreal YMCA, TD appeared to be “out there”, risk-wise. And as the 5th largest bank in the country, no one paid much attention.
The risks weren’t solely in lending, either. TD took a part of Waterhouse public when the on-line trading space was hot, and bought it back cheap when things cooled off. That takes a certain panache.
Almost 20 years have passed since Messers Thompson and Korthals were at the peak, and TD is still specializing in U.S. telecom and cable lending – but the business plan is so much more than that now.
When TD bid for Canada Trust at the tail end of 1999, a former colleague at Nesbitt Burns said: “what they really want is Ed Clark.” As the father of the national energy policy, and the first bureaucrat allegedly fired by then Prime Minister Mulroney when he took office in 1984, I scoffed at the idea. Buying an entire trust company for $6.8 billion just to get ‘Red Ed’?
Looking back, and watching how he works, my former colleague may very well have been right. Mr. Clark’s comfort with controversy (a natural byproduct of working around politics and government) allows him to see what others won’t. He saw the opportunity in a $1.9 billion deal with Hudson United in 2005, even though Hudson had been fined by the FDIC for disclosure failings and was prohibited from opening new branches. Some CEOs might have thought: if I bring this deal to my board, what will they think of me?
Not Ed Clark.
Commerce Bank’s problems are no less severe, as its founder and certain directors are being investigated by the U.S. Federal Office of the Comptroller of the Currency for related party transactions. Once again, a bank CEO will privately wonder: what does this say about me? Instead, Ed Clark is running video tapes of him singing karaoke to help get Commerce Bank’s management comfortable that he’s from a different culture. The anti-banker.
And it works.
The 100+ year tradition that Canadian banks should only hire CEOs from within is being put to the test with each of Mr. Clark’s successive triumphs. Other boards will certainly be watching. TD will soon have the 2nd largest market cap of the big 5 banks, and nipping at the Royal’s heels for top spot. 5th to 1st is now possible, all in half a generation.
The ‘Red Ed’ moniker can now be dropped in favour of ‘Red, White and Blue’. As for the next WWE bout, which of the other banks are going to respond to Mr. Clark’s chest-beating challenge?
(disclosure – we own BMO and TD in our household)