February 2, 2011 / 10:31 PM / 7 years ago

UPDATE 1-TD Bank CEO says capital push won't impact M&A,divs

* Global rules to force banks to hold more capital

* Canada regulator advises quick implementation

* TD to follow own plan on M&A, dividends — CEO

TORONTO, Feb 2 (Reuters) - The head of Toronto-Dominion Bank (TD.TO) says a push to rapidly phase in tighter capital rules won’t affect the bank’s plans for dividend hikes or acquisitions.

The Basel III rules, unveiled last year, set higher capital ratio levels for global banks, and Canada’s financial regulator said this week that Canadian banks should meet the new levels “as soon as possible”.

The Office of the Superintendent of Financial Institutions, also said banks should be cautious on “actions that weaken their capital position”, such as dividends and acquisitions.

“It doesn’t change the way I feel about acquisitions,” TD Chief Executive Ed Clark said at the Morgan Stanley Financials Conference in New York. He said TD would issue equity in conjunction with an acquisition if it felt it was necessary.

“I believe you shouldn’t do acquisition unless you were prepared to issue shares,” Clark said.

The bank's capital ratio under Basel III rules is believed to be well below the 7 percent standard that must be in place by 2019. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For Starmine data on Canadian banks: link.reuters.com/gyh47r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Clark said the bank sets dividend on earnings levels, targeting a payout ratio of 35-45 percent.

He has said the bank will issue guidance on dividends when it reports first-quarter results next month. Analysts have taken that to mean the bank will raise its payout at that point.

Canada’s other big banks are also expected to raise dividends over the next year. Most of the banks have not raised their payouts since 2008, when the financial crisis took hold.

Brad Smith, an analyst at Stonecap Securities, said the banks with lower capital levels, like TD, may feel compelled to implement a smaller dividend hike than a better-capitalized bank.

The Basel rules are designed to stave off a repeat of the global financial crisis. Canada’s banks emerged from the crisis relatively unscathed, without needing any government bailouts, unlike many U.S. and European rivals.

TD’s shares, which have outperformed all but two if its Canadian rivals with a 19.7 percent rise over the past 12 months, rose 7 Canadian cents to C$76.18 on the Toronto Stock Exchange. ($1=$0.99 Canadian) (Reporting by Cameron French; editing by Janet Guttsman)

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