Hot, cold or lukewarm? Taking the temperature of the Big Banks’ appetite for acquisitions

Strong economic growth and rising interest rates have helped Canada’s big banks to record profits, but when it comes to expanding their operations through M&A not all are currently on the same page.

Capital position, strategic direction and the price tag of potential targets are all factors that can affect a bank’s appetite for acquisitions.

In order to decipher just where each of the Big Five stands, the Financial Post has sifted through the latest public comments of their executives and assigned a temperature-related rating to reflect how likely they are to make a significant acquisition.

Bank of Montreal: Lukewarm

The watchword around BMO is “disciplined” — but the lender may still have eyes for an acquisition related to U.S. personal and commercial banking or wealth management.

BMO CEO Darryl White

“Those are two areas in particular where we’re looking to grow the bank,” CEO Darryl White said during a quarterly conference call with analysts last month.

Indeed, one news report from June seemed to highlight BMO’s interest in growing its business in the U.S., as Crain’s Chicago Business reported that BMO Harris Bank had made a higher offer for a local bank, but lost out to another lender.

White had been asked about the deal after it was announced in May, and offered congratulations, but not much more.

“I’ve said it before, I’ll say it again, we look at financial fit, cultural fit and strategic fit, and we’re very disciplined about how we look at that,” he noted.

BMO has pulled off at least one deal of note this year, paying an undisclosed sum for New York-based broker-dealer KGS-Alpha Capital Markets. KGS specializes in asset- and mortgage-backed securities for institutional investors.

Even with the aforementioned interest and relatively quiet M&A moves, White said earlier this month that his view on growing the bank “inorganically” hadn’t changed.

“We do have capital and flexibility to act should something come along that falls into all those slots,” he said. “But a lot of the things we look at just don’t, for one reason or another.”

Bank of Nova Scotia: Cold

Scotiabank president and chief executive officer Brian Porter

If anything, Scotiabank may be squarely in the “sell” column.

That’s because the lender has already been on a bit of shopping spree this year, including its deal to buy doctor-focused wealth firm MD Financial Management for approximately $2.6 billion. This was preceded by news in February that Scotiabank was paying about $950 million for investment manager Jarislowsky Fraser.

There have also been a number of moves intended to grow Scotiabank’s presence in Latin America, such as its successful $2.9-billion bid for a majority stake in Chilean retail lender BBVA Chile.

In the wake of these additions, the lender will be “hyper-focused on integration and execution” over the next year or so, according to comments made by Scotiabank president and chief executive officer Brian Porter at their Sept. 5 financials summit in Toronto.

Asked about divestitures, Porter said his company was “not going to plant any new flags.” The CEO also mentioned that Scotiabank was focused on exiting some of its non-core businesses.

“You’ll see a few divestitures along the way here,” he noted.

Canadian Imperial Bank of Commerce: Cool

CIBC looks to be in a holding pattern of sorts.

After its US$5-billion pick-up of Chicago-based PrivateBancorp Inc. last year, the lender sounds as if it would prefer instead to grow what it already owns.

CIBC chief executive Victor Dodig

There may be, however, a few smaller-sized deals out there for CIBC. Chief executive Victor Dodig allowed for that possibility during the bank’s third-quarter conference call.

But, Dodig stressed, “it’s all about organic growth” at the moment, in addition to investing in the bank’s Canadian business and growing its dividend.

“We’ve signalled very strongly that it’s all about the odd tuck-in opportunity, which is smaller in nature, and we don’t plan any large acquisitions over the medium term,” Dodig said.

Earlier this month, Dodig doubled down on that approach to acquisitions.

“It’s all governed by the practical reality of, we just invested a significant amount in a very important institution that has become part of CIBC, that continues to grow,” he said at the Scotiabank conference. “When it comes to a large transaction, that’s not really what we’re considering in the short to medium-term.

“Can I be any clearer?”

Royal Bank of Canada: Tepid

For Royal Bank of Canada, any acquisition may come down to whether the price is right.

RBC chief executive Dave McKay

The lender has not boated a big one, really, since its approximately US$5.4-billion acquisition of Los Angeles-based City National Bank in 2015.

Asked this month if his bank was interested in another acquisition to complement City National, or if it would bolster its growth organically, CEO Dave McKay said that they would “certainly” look at another acquisition.

“And we’re going through the same process that we did with City National,” McKay added at the Scotiabank conference. “We’re studying our potential partners. We’re building playbooks.”

But the issue, the CEO went on to say, is that by the time a playbook is put together, “you’re in a disconnect with the market prices.”

And RBC, McKay noted, remains disciplined.

“If something corrects, or we find a new synergy that we didn’t think of before, and the two worlds align, and the bank is for sale, we may execute a transaction,” he said. “But there are no plans now. The asset prices are at a level where it just doesn’t make sense.”

“I will not buy growth for the sake of growth,” he added.

RBC also appears to playing it safe in the event of any economic downturn. On Sept. 13, the bank’s chief financial officer, Rod Bolger, told the Barclays Global Financial Services Conference that “it wouldn’t be bad to have some extra capital going into a recession.”

Toronto-Dominion Bank: Warm

TD is sitting on perhaps the most considerable pile of capital.

TD CEO Bharat Masrani

At 11.7 per cent, the bank ended the third quarter ahead of its peers when it came to the CET1 ratio — a measure of a lender’s capital strength.

What’s more, TD CEO Bharat Masrani has been saying for some time now that his bank is interested in making some kind of acquisition south of the border, particularly in the southeastern United States.

“TD continues to look at acquisition opportunities in the U.S. South-East and on the credit card partnership front; however, timing here is very much unknown with the narrative on this front unchanged over the past couple of years,” noted Eight Capital analyst Steve Theriault recently.

Masrani, however, has been consistent in describing how his bank will deploy capital, ensuring its core strategies are adequately funded first before the lender goes looking for M&A opportunities.

TD also recently decided to put some of its capital to work, announcing in July that it had agreed to buy Saskatchewan-based institutional asset manager Greystone Managed Investments Inc. for $792 million in cash and stock.

More recently, TD Bank’s U.S. retail head noted that “it’s been seven or eight years since we’ve done a bank deal.”

“If I say how we would look at this going forward from a bank perspective, we should assume, you should assume, that we look at everything that might be available on the market as we should,” added Greg Braca during this month’s Barclays conference. “But obviously, it’s got to check a lot of boxes for us.”

• Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne

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