Analysis: Canadian banks seek assets to offset mortgage slump

Wed Oct 31, 2012 4:59pm EDT
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By Cameron French

TORONTO (Reuters) - Call it the Homer Simpson approach to business growth: when the pie is shrinking, eat a bigger piece.

Canada's big banks have been doing just that. Facing slower growth in the mortgage market and an unofficial government ban on buying one another, the five biggest lenders have been ravenously snapping up any other financial assets that have become available. It's a trend that looks set to continue.

"As you see slower growth in the mortgage business, they're going to be finding these different types of lending businesses to drive growth," said Tom Lewandowski, a St. Louis-based analyst at Edward Jones.

Last week Royal Bank of Canada (RY.TO: Quote), the country's biggest bank, said it would purchase the Canadian auto finance arm of Ally Financial GKM.N, nearly doubling its exposure to auto lending.

That followed Bank of Nova Scotia's (BNS.TO: Quote) C$3.1 billion ($3.1 billion) acquisition of the Canadian online operations of Dutch bank ING Group ING.AS in late August. When it closes in December, that deal will instantly add C$40 billion in assets and 1.8 million customers to Canada's No. 3 bank.

Both deals followed bidding wars with fellow Canadian lenders.

Also last week, Toronto-Dominion Bank (TD.TO: Quote), Canada's No. 2 bank, agreed to buy discount retailer Target Corp's (TGT.N: Quote) U.S. credit card portfolio and signed an agreement that will allow it to issue the retailer's cards.

"This is just a trend that I think is going to continue as you go forward," Lewandowski said.   Continued...