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What do you think their stategies are?
RY has clearly stated they wish to grow through capital markets and by increasing their asset management portfolio, I state this above. While the Ally acquisition may be possibly fortuitous, there isn't much basis for the timing of the acquisitions. The moves seem like they are brewed out of impatience, hoarding tonnes of cash over the past 5 years, these banks must do something.

TD has been very successful in expanding their network internationally, and made reasonable, albeit not overly profitable venture in the Eastern seaboard of the US. Those network expansions and carrying the TD brand of customer service to individual banking customers has been the basis of their growth over 10 years. Perhaps you could say the Target credit is simply more consumer services and hence lateral expansion in this niche, but bricks and mortar is what they have been good at, not credit (look at their Canadian mortgage portfolio and other lending activities).

Fair to disagree Sqrt, but what how do you believe these acquisitions fit into their strategies? I'm not making judgement on whether they will pan out or not since I have never looked deeply into Targets credit card portfolio, nor into Ally/ResMor, are they profitable? what is the risk etc? Of course the 2 banks have done their research and their management is presumably trust worthy, but when companies start to venture away from what they have been good at, then flags in my head begin to be raised.
 

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The partnership lasts for 7 years.
If I'm understanding the deal correctly, this is only a transitioning period, where Target continues the responsibilities of the accounting, but TD does all the risk management analysis etc. After 7 years, its all TD baby. Hopefully the economy will be thriving by then and TD can score a whole lot of Canadian consumer debt by then.
 

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i think both these deals fits well into their stategies.

For TD, their main stategic thrust is retail banking especially in the US where they currently have more deposits than assets. As such they are always looking for good quality retail assets- hence the Chrysler and now Target deals. Both portfolios are profitable and growing and expand TD's personal customer base in the US. Incidently, TD has been in US branch banking for only 8 years and has managed, despite a terrible envireonment, to remain profitable, gain market share, hugely expand it's footprint, and earn pretty close to it's CoC. Contrast with RY or BMO which were much less successful. TD's credit performance has been exemplary especially in the US. In Canada their credit losses have been higher (although expected) due to their purchase of car finance and credit card businesses. These businesses have generally higher credit losses offset by higher spreads.

For RY: again although Wealth management and Wholesale banking have been a focus of their international stategy, they are still the largest retail bank in Canada but, until this deal, have not been strong in auto finance( Scotia and TD stronger). Royal feels they can capture higher returns if they are the dominant player in a particular business. Probably
true. The deposits are certainly profitable in their own right.

Both businesses (Target and Ally) were profitable and commanded a competitve auction. Both RY and TD have proven the know how to manage suc businesses and ern retrns higher than their CoC.
 

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I guess Sqrt this is something we are in total disagreement over. I think our visions of what the companies have been doing and where they have been successful is in line. You view the acquisitions as lateral expansions to these efforts but I do not.

As a side-bar, I wouldn't call TDs expansion into the US as fully successful, they are gaining market share, but the American portfolio is not nearly as profitable as the Canadian side. I do believe they can and will make their Banknorth, Commerce and South Financial acquisitions prosper much more in time. But these acquisitions fit into the pattern set back in the late nineties and highlighted by the Canada Trust acquisition of expanding 'classic' retail banking.

Whether the Chrysler, MBNA, and now Target credit acquisitions pan out, not tested, no evidence. Again, the basis of my malaise, I'm not refuting your argument that the management decisions have been excellent, but call me conservative, I don't like 'new' ventures. I invested and will continue to invest in TD for their strength of retail banking.

For either company to grow, it is clear that Canadian retail offers very little. This could be a very interesting time for Canadian banks as they try to look for growth opportunities, they can't all work out just because they have good management teams. Mistakes do and will happen.
 

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Let's agree to disagree. Wih me the banks glass is always half full. Having said that I have done very well with them over the years and have no immediate plans to lighten. Being retired, I just love those growng divs.

Incidently, retail banking in Canada earns a ROE of over 40%. Even growth at 5-7% is a great business. TD has said they will grow their div 12%/ year for the next several years. I think it would be unreasonable to expect any bank to buy its way into the US market and have established a totally successful business within 8 years in this envireonment. But like I said, the glass is always half full for me.
 

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Discussion Starter · #26 ·
Do you think the higher profitability of Canadian retail banking has any connection with the higher profitability of Canadian retailing?

By that, I mean that Canadian retailers are generally more profitably than US retailers, hence why so many (Target and Nordstrom to name a couple) are trying to set up shop. The main reason why Canadian retail is more profitable is that there is a general shortage of retail-suitable real estate in Canda, which limits the amount of competition. In general, the US has looser planning and land use restrictions, which permits retail developments to pop up all over the place. It wouldn't surprise me if the same limits on retail real estate in Canada make retail branch banking in Canada relatively more profitable than retail branch banking in the US. That being said, I think the general shortage of competition (not retail real estate) is the main reason why Canadian banks are so profitable.

By that logic, TD's US banking operations might never be as profitable as their Canadian operations, where they face much less competition.
 

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Robillard:TD's US branch banking will probably never be as profitable as the Canadian business. In Canada we have decided we want a protected oligopoly that is stable and profitable(very). The US is very different. Wild west comes to mind, at least before the crisis. Also, keep in mind that TD had to pay market price (say 2x book) for their US operations and this will reduce their returns. But if TD can earn a reasonable 12-15% return on it's investment in the US (currently earning about 7-8%) it will be a huge win for them.
 

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@Square Root - It was RBC, not TD, who purchased Target's CC portfolio. They will be releasing an RBC Target MasterCard when the Target stores start opening next year - http://www.rewardscardscanada.com/target-rbc-mastercard-in-the-works/
Hadn't heard about this new RBC card, but the TD deal has been in the news quite a bit in the past week or so: http://www.theglobeandmail.com/glob...rtfolio-to-td-bank/article4630664/?cmpid=rss1

Based on this, I would imagine that RBC would likely sever its ties with Target...?

Regards,
--kjm
 

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...In Canada we have decided we want a protected oligopoly that is stable and profitable(very). The US is very different. Wild west comes to mind, at least before the crisis...
I doubt that except the broad strokes - the US banking system is going to shift much away from a wild west scenario.

Long before the 2008 crisis, my folks went through something like twelve banks in nine years. Not because they changed banks but because the bank they were with was bought out or merged. It was a major headache for them to keep up with the changes each new bank brought to their accounts (ex. bank 1 charges a fee for using the ATM but not the teller, bank 2 charges a fee for using the teller but not the ATM etc.).


Cheers
 

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I'm surprised everyone thinks this is negative. Many of the same posters were neutral and saying, lets see what happens with the ING Canada acquisition.

Do you guys believe it is simply in the big 5's nature to increase margins at the expense of losing some customers.
Exactly what I was thinking. ING's investments have remained the same; there was no huge fall when ScotiaBank bought them, and I haven't seen any change in Ally's current 1.8% high interest savings rate. And if there is, move the money to another bank.
 

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Exactly what I was thinking. ING's investments have remained the same; there was no huge fall when ScotiaBank bought them, and I haven't seen any change in Ally's current 1.8% high interest savings rate. And if there is, move the money to another bank.
The ING and Ally acquisitions haven't closed yet. I personally don't care about the ING takeover for two reasons. One ING's savings offerings are not in the top tier anymore. Second, Scotia has explicitly stated that they are planning on keeping ING's business model.

The Ally acquisition differs on both counts. Among CDIC insured savings products, Ally offers one of the highest interest rates. And AFAIK, RBC has made no commitment to maintaining Ally's deposit products.
 

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This is disappointing. I had planned to move a substantial amount of cash (for me) to Ally. I may reconsider.

Can anybody tell me if the CDIC consider Ally to be part of RBC for insurance purposes?
 

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Can anybody tell me if the CDIC consider Ally to be part of RBC for insurance purposes?
If RBC keeps ResMor Trust separate, then Ally will be considered separate from current RBC deposit taking institutions (there are at least five according to this webpage: http://www.cdic.ca/Pages/Members.aspx#RR). However, we won't know that until the acquisition closes.
 

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Thank you very much for the answers to my question about CDIC insurance at Ally.
 

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I'm just wondering if it is worth keeping my money with Ally. I have both a Cdn HISA and US dollar account with them. RBC just placed a notice up, stating people can no longer start new accounts with Ally. I would speculate that next thing RBC woud do is either drop rates on the current Ally products or force people to convert to one of their RBC lines of products by a certain date. I am starting to get concerned, particularly the US $ account, which is not CDIC insured (I don't have any other US account to transfer...wishing I could transfer the amount to TD Waterhouse).
 

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I checked into Peoples Trust but they have no online access , same as Bridgewater bank....pretty useless for my purposes.
 
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