Canadian banks growing in US market

Canadian banks in the US market have increased their activity over the last two years with significant increases in sales for established players and new players entering the market.

According to SRP data sales of Bank of Montreal Financial (BMO) increased almost 4.5 times over to $617m at the close of 2014. RBC saw a 36% rise in sales y/y to $3,649m. Toronto Dominion Bank (TD Bank) began to issue structured notes at the end of 2014, taking in $33.6m at the close of the year. So far this year TD has sold $23m. Before November there are 6 products in the US database issued by TD dating back to 2006. In 2013 CIBC sold $5.8 worth of structured notes – that number increased by 50% to $8.8m in 2014. CIBC has yet to issue any products in the calendar year.

“Canadian issuers of structured notes have done well domestically, so it is natural for them to expand cross-border,” said Joe Halpern, chief executive of Exceed Investments. “They should find there is demand for Canadian credit by US investors because Canadian institutions are viewed as the conservative, good credit you want behind a defined outcome investment.”

Every Canadian bank active in the US has seen a significant rise in sales year on year. Players like TD and CIBC have reentered the game, and Scotiabank recently filed a series of preliminary prospectus with the Securities Exchange Commission (SEC) for a Senior Notes Program of $11.8bn. The registration documents say that Scotiabank can issue structured notes linked to commodities, rates, equities and exchange-traded funds.

“I think these businesses have hit their peak at home and now they’re looking to diversify their income streams in other jurisdictions. If these Canadian banks were not in the US before, it makes sense of them to come to the US now,” said a sell-side banker. “These banks have gotten the message from the regulators down to the investors that they like Canadian banks.”

In Canada the 2014 leaderboard for structured product sales is dominated by Desjardins Group with CAD2.4bn (USD 1.93m), followed by BMO Financial with CAD2.1bn (USD 1.69m), TD Bank with CAD1.8bn (USD 1.45m), RBC with CAD1.3bn (USD 1.05m) and National Bank of Canada with CAD1.3bn. Collectively these top five issuers took an 83% share of the Canadian market. Other structured product providers include CIBC, Scotiabank, Epargne Placements Quebec, and Incapital. The Canadian market is comprised of GICs, Notes and PPNs, with the most popular wrapper being GIC in both 2013 and 2014.

Canadian banks are quite conservative by nature. “There is a better regulatory environment in Canada, with better controls, to make for safer banks – they weathered the 2009-2010 credit crisis pretty well, with no Canadian bank taking a bailout,” said the source. The fact that Canadian banks are at the top of the heap when it comes to credit ratings may be a contribution factor in the Canadian banks’ expansion in the US market.

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Canadian banks growing in US market