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TD on deal hunt after BancWest bid as Canadian lenders pursue U.S. growth

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Toronto-Dominion Bank is leading the charge of cash-rich Canadian banks seeking to make a foray in the United States and find growth away from their home turf where the Big Six banks already control nearly 90% of the market.

Billions of dollars of excess cash amassed during a nearly two-year moratorium on capital redistributions that was only lifted last month, and share prices close to record highs have given Canadian banks an acquisition currency to bet on the exit and downsizings of several European and international banks.

The sale of BNP Paribas’ U.S. unit, Bank of the West (BancWest), is the latest example of pent-up demand, with Toronto-Dominion Bank battling it out with rival Canadian lender Bank of Montreal, two sources familiar with the matter said.

Bank of Montreal said on Monday it will buy BNP Paribas’ unit, Bank of the West, for $16.3 billion in its biggest deal ever.

TD, Canada’s second-largest bank by market value, had looked at every major asset portfolio that came up for sale, including the U.S. businesses sold by Mitsubishi UFJ (MUFG) in September and BBVA in November 2020, the sources said.

It remains on the hunt for acquisitions in the United States after its narrow loss to BMO.

TD and BMO spokespersons did not comment on the bidding process or future growth plans in the United States. MUFG declined comment on the Canadian banks’ interest in their assets and BBVA did not immediately respond to a request for comment.

“Banking is a scale, technology and sophistication game,” said Brian Madden, portfolio manager at Goodreid Investment Counsel.

He added that Canadian banks already in the United States are well placed to scale up their U.S. operations since they “happen to be directly adjacent to the largest banking market on the planet.”

TD executives said earlier this year that the bank “will not be shy” to do a bank deal in the U.S. Southeast or in any area where it currently has operations, primarily on the East Coast.

Having missed out on some big acquisitions, TD is now likely to turn its attention to smaller banks, one of the sources said.

Along with TD and BMO, Royal Bank of Canada, Canadian Imperial Bank of Commerce (CIBC), Bank of Nova Scotia and National Bank of Canada round out Canada’s Big Six banks.

TD is one of the top 10 banks in the United States, and Royal Bank owns City National, the ninth-largest bank in California by deposits.

Royal Bank has also been undergoing U.S. expansion, although Canada’s biggest lender is more focused on its wealth management https://www.reuters.com/article/us-rbc-wealth-idUSKBN25U1I6 business in the United States.

And CIBC, which entered the United States in 2017 with its acquisition of PrivateBancorp, has said it is aiming for increased earnings from the country in the coming years.

Royal Bank did not respond to a request for comment. CIBC declined to comment.

BMO’S CHASE

BMO had pursued BancWest after losing out on the U.S. retail business of MUFG, Japan’s biggest lender, one of the sources said. MUFG ended up selling its U.S. retail business to U.S. Bancorp for $8 billion.

BMO made a competitive bid for MUFG’s assets, and its disappointment at losing out propelled Canada’s fourth-largest bank to move fast on the BancWest sale, the source said.

BNP Paribas, advised by Goldman Sachs and JPMorgan, entered parallel discussions with both TD and BMO, raising pressure on both bidders to finalise their offers as it fretted that regulatory headwinds could hamper the sale, the sources said.

BNP Paribas did not respond to a request for comment.

While TD initially made a low bid and subsequently raised it, BMO was more aggressive with its first proposal and was quick at declaring its offer “best and final” in December after offering a final sweetener, one of the sources said.

The deal will make BMO the 16th biggest bank by assets in the United States, up from 19th now, and lifts its assets to nearly $300 billion.

By merging with U.S. rivals, Canadian banks with an existing U.S. presence are expected to extract better returns from these businesses than smaller players, even when they appear to pay a premium as BMO did for BancWest, said Anthony Visano, portfolio manager at Kingwest & Co.

“Sometimes the strategic value trumps the financial consideration,” Goodreid Investment’s Madden said.

 

(Reporting by Pamela Barbaglia in London and Nichola Saminather in Toronto; Editing by Megan Davies and Matthew Lewis)

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Canada Dec retail sales seen down as COVID restrictions bite

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Canadian retail sales most likely fell by 2.1% in December as authorities imposed restrictions to fight the Omicron variant of the coronavirus and retailers faced challenges, Statistics Canada predicted on Friday.

Statscan also said retail sales rose 0.7% in November, which was less than the 1.2% gain forecast by analysts.

The flash estimate for December was based on responses from 50.6% of companies surveyed. The average response rate is 90.0%.

Statscan also said some shoppers decided to pull forward their purchases to November to avoid shortages caused by endemic supply chain issues.

Andrew Grantham, senior economist at CIBC Capital Markets, said the December dip was a little larger than he had expected.

“Bricks-and-mortar retailers will have likely continued to struggle in January due to Omicron-related restrictions and staff shortages,” he said in a note.

This weakness, he suggested, might “tip the scales slightly” in terms of persuading the Bank of Canada to hold steady when it makes a rate announcement on Jan 26. Money markets see about a 70% chance that the central bank will lift its key overnight rate from the current record low 0.25%. {BOCWATCH]

The bank has previously said it could raise rates as early as soon as April.

Stephen Brown, senior Canada economist at Capital Economics, said the December decrease in sales was likely to be more than 2.1%, given the rapid spread of Omicron that month.

November’s gain was fueled by higher sales at gasoline stations, and at building materials and gardening equipment and supplies dealers.

Sales rose in six of 11 subsectors, representing 63.8% of retail trade. In volume terms, retail sales edged up 0.2%.

The Canadian dollar was trading 0.1% lower at 1.2520 to the greenback, or 79.87 U.S. cents.

 

(Reporting by David Ljunggren in Ottawa and Fergal Smith in Toronto; editing by Jonathan Oatis)

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Canada's energy patch sees 'significant' boost in investment – BNN

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Investment in Canada’s oil and natural gas industry will rise 22 per cent this year to $32.8 billion (US$26.3 billion) amid higher prices for hydrocarbons, according to the Canadian Association of Petroleum Producers.

The $6 billion gain in investment marks the second straight year of “significant” increases, the oil and gas industry association said Thursday in a report. Spending on Canadian energy is rising as U.S. oil prices surge to their highest in seven years. West Texas Intermediate futures are trading at more than US$85 a barrel and natural gas up about 60 per cent in the last year amid an energy demand recovery from the COVID-19 pandemic.

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Investment in Canadian oil sands, the world’s third largest oil reserves, will jump by a third to $11.6 billion while investment in conventional oil and gas will climb 17 per cent to $21.2 billion from last year.

Still, CAPP warned that Canada is losing out to other energy-producing regions. Canada was viewed as a “top tier” jurisdiction for international investment in 2014, when it attracted $81 billion or more than 10 per cent of global upstream gas and oil investment. Forecasts suggest Canada’s market share has fallen to 6 per cent — a drop that represents more than US$21 billion in potential investment. 

This year’s investment growth will leave the industry about where it was in 2018, before the pandemic slashed demand, Tim McMillan, CAPP’s president and chief executive officer, said by phone.

Many Canadian energy companies, similar to their U.S. peers, are paying down debt and returning cash windfalls from oil price gains to shareholders through stock buybacks and higher dividends as investors seek higher returns over growth. Meanwhile, concern about the impact of higher-than-average carbon emissions from Canada’s oil sands prompted some banks and funds to pull investment from the industry in recent years.

“There has been pressure put on the banking industry and through other mechanisms, which is pushing investment to other jurisdictions,” McMillan said.

Investment in Newfoundland and Labrador’s offshore oil industry will rise about 6.7 per cent to $1.6 billion this year, according to CAPP. In comparison, the Gulf of Mexico’s offshore investment is expected to jump 21 per cent to $13.1 billion this year.

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Peloton stock is crashing on reports it's halting production of bikes and treadmills – Yahoo Canada Finance

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The bad news flywheel continues to be spinning in warp speed at Peloton (PTON). 

Shares of Peloton crashed 24% to $24.22 on Thursday after a CNBC report that the struggling fitness company would temporarily halt production of its bikes and treadmills due to sluggish consumer demand. Shares fell below the company’s September 2019 IPO price of $29. 

The company will reportedly stop producing its bikes for two months and treadmills for six weeks. 

A Peloton spokeswoman didn’t return Yahoo Finance’s request for comment. 

“Peloton’s inventory build at the end of last quarter made it clear that they were still operating a supply demand mismatch. Unfortunately, unlike the pandemic, this time supply meaningfully outpaced demand,” BMO Capital Markets analyst Simeon Siegel told Yahoo Finance. 

Siegel has been a long-time bear on Peloton with an Underperform rating on its stock. 

Shares are now down 30% in December amid bad headlines from a product placement in the new “Sex and the City” reboot. One of the show’s lead characters, Mr. Big, suffers a heart attack after a Peloton bike ride at the end of its premiere episode. 

Earlier, Peloton’s stock crashed more than 30% on Nov. 5 after the company said that connected fitness subscribers of 2.49 million was roughly in-line with analyst estimates. The number of workouts on the platform trended lower for the second consecutive quarter. Sales fell well short of analyst estimates, and the company posted a wider loss than expected.

Peloton also slashed its full-fiscal year outlook.

The company sees full-year sales of $4.4 billion to $4.8 billion, down sharply from $5.4 billion previously. Peloton expected a full-year adjusted operating loss of $425 million to $475 million. The company had expected an operating loss of $325 million.

Shares are down 83% in the past year.

More bad news could be right around the corner: Peloton’s earnings release on Feb. 8. 

“We expect that guidance, if given, will be kitchen-sinked at this point and await more color on these various news items on the call,” Macquarie analyst Paul Golding said. Golding rates Peloton at outperform with an $85 price target, which assumes 254% upside from current price levels.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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