Canadian banks facing scrutiny from regulators as they look to expand to U.S. – National

Canadian banks seeking to expand into the United States through acquisitions face heightened scrutiny from regulators and politicians, as well as renewed focus on past disputes.

TD Bank and BMO are pushing for big deals there, TD with a US$13.4 billion deal for Southeastern US-focused First Horizon, and BMO with a deal US$16.3 billion for California-based Bank of the West.

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The Canadian banking sector’s general push south for growth comes after US President Joe Biden issued a sweeping executive order last year calling for increased economic competition, including through the “revitalization” of merger oversight in the banking sector.

BMO and TD Bank each face public meetings over their proposed deals, a step not required by regulators but which the US Office of the Comptroller of the Currency announced in May will apply to those deals. It also extended the public comment period for both agreements.

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The public hearings came after a speech by Acting OCC Director Michael Hsu saying that “now is the time to rethink the frameworks used to analyze bank merger applications.”

While there is no suggestion that the changing regulatory climate is preventing deals from going through, the change risks creating delays and has heightened the scrutiny of those trying to get them done, while providing fodder for politicians who have criticized industry.

Earlier this month, US Senator Elizabeth Warren sent a letter to the OCC, the top banking regulator, asking it to “block any mergers until TD Bank is held accountable for its abusive practices”.

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The letter stems from a report published last month by investigative news outlet Capital Forum which alleged that a government investigation in 2017 uncovered “problematic account practices stretching across retail branches from Maine to Florida.” at TD, including a points system that rewarded employees for signing up customers for new accounts and services like overdraft protection without their permission.

Warren said the alleged practices, which she called “rampant fraud and abuse,” drew parallels to the accounts scandal at Wells Fargo, where the bank created millions of fraudulent accounts without the consent of the customer. The high-profile case led to charges against the former CEO and a $3 billion settlement with federal agencies in 2020.

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TD strongly rebutted the claims of the investigative article.

“The allegations in the Capitol Forum article are completely unfounded. It is unfortunate that they chose to publish a factually incorrect story,” spokeswoman Elizabeth Goldenshtein said via email.

“Our business is built on ethics, integrity and trust, and our compensation practices – which place a strong emphasis on customer satisfaction – are carefully and actively managed.”


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She said the bank continued to advance its work to gain approval for the First Horizon deal.

Still, the attention was enough to raise doubts about the deal for National Bank analyst Gabriel Dechaine, who said in a note to clients that the letter from Warren and three members of Congress could block the acquisition. from TD.

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He said the broader attention the letter calls for, including asking the regulator to “closely examine any ongoing wrongdoing” at TD, could put the bank at greater risk.

“Whether the acquisition of 1/8First Horizon 3/8 is approved or not may prove to be a secondary matter. Whenever a bank’s sales practices in the United States are compared to those of Wells Fargo (c is what Senator Warren’s letter does), this is not the right time.

He noted that TD had previously faced reprimands for similar sales practices in the United States after the bank was fined US$122 million in 2020 by the Consumer Financial Protection Bureau for ” illegal overdraft listing”.

TD, along with many U.S. banks, have since drastically reduced or eliminated overdraft fees under pressure from U.S. regulators as part of broader banking reforms.

More intense regulatory pressure also played a role in Dechaine’s downgrade of both TD and BMO in March, as he said he expects the two US deals to be completed later than the banks. do so due to “uncertainty of regulatory approval”.

The more intense process has already created delays for other banks. Last month, Tokyo-based Mitsubishi UFJ Financial Group, Inc. said a longer-than-expected regulatory approval process had pushed back the expected closing date of the $8 billion sale of its subsidiary to U.S. Bancorp.

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BMO’s deal hasn’t attracted the kind of attention that TD is facing, although US media has commented that the US$1.9 billion lawsuit the bank is facing in Minnesota over a Ponzi scheme could complicate the procedures.

St. Louis-based banking analyst James Shanahan said there’s definitely a different regulatory climate right now.

“There is more examination. It’s safe, ”said the principal analyst at Edwards Jones.

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“With Biden’s executive order and Democrats in charge of the House and Senate, we have seen greater scrutiny of mergers and acquisitions activity, in general, but perhaps particularly in the area of ​​financial services.”

He said, however, that the deals between TD and BMO aren’t the kind of deals Democrats are particularly concerned about because they don’t appear to raise major antitrust issues or lead to significant job losses.

Shanahan said it was very reasonable that the deals would be done by the end of the year as planned, but they could certainly be pushed back.

© 2022 The Canadian Press

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