Buy American

How a Toronto-based bank stormed the U.S. market

It is a rich bit of irony. Back in 1964, Finance Minister Walter Gordon sowed the seeds of what would eventually become Canada’s banking oligopoly when he imposed a 10 percent ownership limit on Canadian banks, ostensibly to protect Toronto-Dominion Bank from the clutches of Wall Street giant Chase Manhattan. The tactic worked: Chase Manhattan retreated and Canada’s banks remain widely held. Four decades later, the tables have turned. TD, Canada’s second biggest bank by assets, has launched an aggressive assault into the lucrative U.S. market that is unprecedented in this country’s banking history. Today, TD Bank has the largest U.S. presence of any Canadian financial institution with 1,300 retail branches (compared to 1,150 in Canada). That is not quite ubiquitous in a country littered with 7,800 banking institutions, but enough to rank TD ninth largest in the United States, and sixth overall in North America.

In Banking on America: How TD Bank Rose to the Top and Took on the U.S.A., Howard Green chronicles the journey of how the smallest among the Big Five Canadian banks not only bulked up, but did so on a steady diet of American acquisitions that had long given TD’s Canadian peersindigestion. With luck and good timing (and a healthy measure of risk aversion), TD has emerged a behemoth with half a trillion dollars in assets, 74,000 employees and profits of more than $11 million a day. Essentially TD has seized opportunities that opened up after the 2008 financial crisis. As U.S. banks continue to struggle to regain their footing, Canada’s major financial institutions, armed with their sterling credit ratings, have been scouring this once forbidden market on the strength of their balance sheets and deep capital reserves. Almost US$38 billion has been spent in the past four years by Canadian banks—and TD has been the biggest shopper, staking its green logo all along the U.S. eastern seaboard from Maine to New Yorkto Florida.

Even influential U.S. bankers, renowned for their myopic self-importance, are taking notice. “The triple-A bank is here,” quipped Jamie Dimon, CEO of JP Morgan Chase & Co., at a CEO conference in 2010 when he spotted Ed Clark in the room.

Banking on America tells a feel-good story of what TD has done right in the United States, while others, such as the Bank of Montreal and Royal Bank, have struggled or failed. It is by no means a comprehensive corporate biography. In fact, the early post-merger years of the Toronto Bank and Dominion Bank in 1955 get short shrift. Green’s main focus is on the modern era, the strategy and the players that propelled the Canadian giant deeply into a massive market famous for closing ranks against foreigners.

Green, a long-time television anchor for BNN, delivers a fast-paced, chatty narrative filled with anecdotes and rare glimpses into the internal battles, the victories, losses and petty power plays that marked the bank’s ascent over the past 30 years. Predictably, by prying open the executive vault, he reveals a sycophantic environment where middle-aged men in pinstriped suits slam phones, bark threats and compliment each other as geniuses, “extraordinary” or “the smartest guy I ever worked for.” Much of the credit for TD’s surge and success in the U.S. is given to two very different men: a gritty self-taught entrepreneur named Keith Gray and Ed Clark, the former federal bureaucrat, Harvard graduate and PhD in economics who has been CEO since late 2002.

Clark is cast as the brains behind the brawn of Gray, and as beneficiary of a smart lineage of predecessors who positioned the bank’s balance sheet and secured a valuable U.S. beachhead. “While Ed Clark gets all the glowing press, he is sitting on top of an institution that has a history of building brick by brick,” Green writes. “Clark has the benefit of following three other successful CEOs and many other sharp TD executives, both current and past.”

A Protestant farm boy and high school dropout, Keith Gray started at TD in rural southwestern Ontario in 1954 as a junior clerk filling inkwells for $23.08 a week at a time when bank branches did not have ballpoint pens but kept loaded guns on the premises to deter robberies. Over the course of 43 years, he rose within the bank’s ranks as a teller, lending officer and branch manager. The perennial outsider who thought like an entrepreneur—definitely not an MBA graduate—was deployed by TD’s senior brass, led by then president Robin Korthals and patrician CEO Dick Thomson, to do “a lot of the bank’s dirty work” during the recession of the early 1980s. In fact, Thomson once sent the “hardboiled” Gray to lean on a TD bank director who was behind on a loan.

In those days, TD was heavily into corporate lending, much of it to major cable companies such as Rogers Communications Inc. Although Thomson and Korthals believed in local banking, they were nonetheless inspired by U.S. discount brokerage giant Charles Schwab. TD’s version was conceived in a sandbox in the offices of a major Toronto broker at a time when all of its competitors were clamouring to buy established investment dealers. In 1983, TD bucked the trend and assigned Gray the task of building a discount brokerage inside the bank. It took nearly a decade and millions in losses, but GreenLine finally became a major money maker for TD. Thirteen years later in 1996, Charles Baillie, who had replaced Korthals as president, joined forces with Gray to convince the cautious Thomson to acquire U.S. discount brokerage Waterhouse Investor Services. It would be a watershed moment for TD, although it almost did not happen because of the dithering former CEO.

The transformative transaction, though, was the $8 billion acquisition of Canada Trust in 2000, two years after the federal government nixed big bank mergers. TD’s purchase of Canada Trust, the anti-bank whose cheeky marketing campaigns mocked bankers’ hours and named its automated machines JohnnyCash, catapulted TD from a cellar dweller to near the top of the heap among the Big Five. More importantly, the deal brought Clark, Canada Trust’s CEO at the time, into TD’s orbit.

The “sickly” executive with “flat feet” built on Baillie’s legacy by increasing TD’s U.S. footprint with two seminal acquisitions. The first was 51 percent of BankNorth for US$5.1 billion in 2004, followed three years later by Commerce Bank for US$8.5 billion. Under Clark, TD shed assets in faraway places like India. He shrank TD’s corporate lending book and he brought about a change in attitude, the so-called “theology of TD,” whose gospel preaches profits through friendly customer service, not fancy and complicated financial products. Still, managing the clashing cultures is comical. In the U.S., where banks are treated as retail outlets and employees as “whack jobs,” Americans are schooled in the history of the Canadian bank at TD University in New Jersey, using Rotary Club techniques, “retail-tainment” and corny slogans that make uptight Canadian executives cringe.

“I think what Ed has done is a great job creating the culture,” Green quotes a former Canadian TD executive. “You all wear your little green pins. The question is, how real is it? This is bullshit. At the end of the day, it’s trying to make the most money.” The criticism is rare in a book that is at times overly sentimental. Furthermore, readers would have benefitted from independent commentary and a more critical, not necessarily skeptical, perspective.

Nonetheless, Banking on America is an easy read, although not an unsophisticated one. Green makes the arcane common and decodes complex financial terms into simple elucidations. Some may quibble that the conversational writing style undermines the weightiness of this insightful work, but by making this tale accessible to a wider audience beyond Bay Street, Green has performed a public service.