Toronto-Dominion Bank (NYSE:TD) is currently the eight-largest bank in the U.S. in terms of deposits. Based in Canada, the bank does more business in the U.S. than at home. And with its $6.3 billion acquisition of Chrysler Financial, it is also one of the top 20 lenders in the country. Given Royal Bank of Canada‘s (NYSE:RY) recent retreat from U.S. operations with its sale of its struggling U.S. retail banking subsidiary to PNC Financial (NYSE:PNC), and the general tendency for Canadian companies to be pushed out of the country by U.S.-based competitors, Toronto-Dominion is an interesting study in how to do business from across the border.
Ed Clark, the chief executive of Toronto-Dominion, began his expansion into the U.S. market by purchasing just 51% of Banknorth Group of Maine in 2004. There were few opportunities for growth at the time, and it was a relatively small bet, but since then, Toronto-Dominion has made seven more acquisitions in the U.S.
Toronto-Dominion (NYSE:TD), unlike many other large banks, has focused mainly on developing as a retail banking institution. Clark has emphasized the bank’s reputation for convenience and customer service, adding evening and Saturday branch hours and conducting nightly customer satisfaction surveys. The surveys are actually used, instead of financial performance indicators, as a means for determining pay for bank employees. Clark also studied retailers rather than banks to get ideas for how to run his business.
When Toronto-Dominion (NYSE:TD) bought the relatively small Canada Trust back in 2000, Toronto-Dominion was looking to become a major force in retail banking, and used Canada Trust as a means of doing so. Clark decentralized the business and gave decision-making power to the employees who dealt directly with customers.
It was in 2002 when Clark became chief executive and started looking to expand south of the border, ultimately making its biggest push into the U.S. in the midst of the financial crisis. While established U.S. banks were struggling, Toronto-Dominion was thriving, increasing U.S. operations and acquiring new banks, like Commerce Bancorp of New Jersey for $6.8 billion in 2008.
But Toronto-Dominion has been conservative in their business, being much more cautious when it comes to residential mortgage lending than most banks — a refreshing approach but one that means they aren’t quite capitalizing on their success at gathering deposits from retail clients. Their recent acquisition of Chrysler Financial, now TD Auto Finance, was meant to remedy that problem and increase consumer lending, with car loans being significantly lower risk when compared to mortgages, and coming with higher margins.
Finally, Clark doesn’t feel the need to dominate the U.S. market, which means he’s less likely to take big risks. For a Canadian business, the U.S. is so vast and populous that only a fraction of the country makes up the entire consumer base in Canada (NYSE:EWC), allowing a relatively small U.S. bank more customers than a top Canadian bank.