* CEOs say well positioned on capital vs global peers
* See asset values, risks still too murky for acquisitions
* Conserving capital remains a priority
(Adds comments from executives)
By Andrea Hopkins
TORONTO, Jan 14 The heads of Canada's four
largest banks said on Thursday they remain focused on capital
conservation because of uncertainty over global regulatory
changes and the riskiness of making acquisitions.
Gord Nixon, chief executive of Royal Bank of Canada
(RY.TO), the nation's biggest bank, and Ed Clark, chief
executive of Toronto Dominion Bank (TD.TO), the No. 2 bank,
both said Canadian banks have strong capital levels compared
with global rivals, but that there is no rush to spend it on
"I don't think most Canadian bank CEOs are going to be
rushing to burn through their capital until they have some
certainty of (global rules)," Clark told investors at an RBC
Capital Markets banking conference in Toronto.
TD, which has focused its expansion strategy on the U.S.
retail banking market, said it has mostly ruled out a
blockbuster purchase in the United States.
"We've always said, not that everything would absolutely
have to be an FDIC (Federal Deposit Insurance Corp)-assisted
deal, but it would have to be a small deal where we thought the
catastrophic risk was estimable, so the idea that we would go
out and do a big acquisition -- I just don't think it is in the
RBC's Nixon said the lack of mergers and acquisitions in
financial services generally, particularly in the U.S. market,
is due to a lack of clarity about asset values and risks. He
said it is "almost irresponsible" to go out and invest in the
current uncertain environment.
Nixon said he believed there will be good opportunities for
RBC to expand in global wealth management, as well as in
insurance, in part because the bank will have strong capital
levels even after global regulatory changes take effect.
There is no question that global regulators will require
higher capital levels and lower leverage ratios, changes that
will hurt global rivals more than the conservative Canadian
banks, Nixon said.
He said RBC would be in a position to consider several
options to deploy excess cash, including share buybacks,
dividend increases or acquisitions.
But Nixon cautioned that for now, he'd rather be criticized
for having too much capital than not enough, adding that the
Canadian regulator had made it clear it did not favor any of
the banks depleting cash levels right now.
Sabi Marwah, chief operating officer at Canada's
third-largest lender, Bank of Nova Scotia (BNS.TO), said there
were only two areas that might offer the internationally
focused bank the opportunity for a large acquisition: Mexico,
where it already has a strong presence; and Canada, where it
has a stake in CI Financial Corp (CIX.TO).
But for the time being, Marwah said the bank is happy with
its significant minority stakes in Canadian wealth managers CI
and DundeeWealth Inc (DW.TO), saying the two independents, plus
Scotiabank's own wealth management division, offer the bank
He declined to comment on any timetable for taking a bigger
stake in CI, saying only that the bank would do what is "in the
best interest of Scotiabank shareholders".
Bill Downe, CEO of Bank of Montreal (BMO.TO), the nation's
No. 4 bank, said there is no question that Canadian banks in
general, and BMO in particular, are far better capitalized than
global rivals. He said that puts BMO in a good position to
expand as peers work to rebuild their cash reserves.
"I think consolidation is going to start in 2010 and
accelerate in 2011," Downe said, adding there is more clarity
on capital and costs than there was just two months ago.
Downe said regulatory capital changes will diminish even
the fat cash levels enjoyed by BMO and other Canadian banks.
"But the gap between the best capitalized banks in the
world and the least capitalized banks in the world is gigantic,
and ... my view as one of the best capitalized banks in the
world, is that, if you're paying attention, that is the place
you want to be."
BMO has focused its expansion goals on the U.S. Midwest,
and Downe said there will be opportunities for growth there as
rivals are sidelined by the need to rebuild capital levels to
meet the new global requirements.
(Reporting by Andrea Hopkins; editing by Peter Galloway)