While many a merger that looked good on paper has failed to live up to expectations, the proposed marriage between Canadian Imperial Bank of Commerce (CIBC) and Toronto Dominion Bank, at least from a securities operations perspective, is looking to many like a dream match up.
"When large institutions merge there can be more redundancy than synergy. But in this case the pieces seem to fit together nicely," says James Keating, an industry analyst at Midland Walwyn in Toronto.
In addition to complementing one another in investment banking and retail operations, Keating says both CIBC Wood Gundy and TD Securities have shown themselves to be on the same wavelength about aggressively expanding their presence beyond Canadian borders.
Although the firms already control a sizeable share of the Canadian brokerage and investment banking business, it has been their hunger to move southward that has been their most notable feature in the past few years.
CIBC World Markets, the parent for Wood Gundy Securities, has been carving out a growing niche in U.S. investment banking via a New York office focusing on high-yield debt and derivative instruments. And last year CIBC World Markets President John Hunkin engineered the purchase of New York-based Oppenheimer & Co. for around $550 million.
"I would say that Hunkin is almost alone among Canadian securities executives in really understanding that the only way to compete with the Merrills and Goldman Sachs of the world is to match their strength with strength," says the head of a Toronto-based brokerage firm.
Hunkin, who is expected to head the combined securities operations of the new firm, will find a lot of tools suddenly at his disposal. In addition to TD Securities' full-service operations and TD Greenline Investor Services--the largest discount brokerage in Canada--he also will gain control over U.S.-based Waterhouse Investor Services, Kennedy Cabot & Co., and the recently acquired Jack White & Co.
Further, the new combined firm also will own Waterhouse National Bank, an almost overlooked part of TD's original Waterhouse acquisition. That bank recently received regulatory approval to expand from a limited financial institution to one permitted to offer retail services throughout the United States. As such, it suddenly becomes a handy vehicle to combine banking and retail brokerage services to clients at all of the new entity's retail securities businesses.
Canadian regulators have been lukewarm over the idea of agreeing to mega-mergers in the financial services sector, but the announced consolidation of Citicorp and Travelers Group appears to have left them with little choice but to give the go-ahead to the CIBC/TD deal.