Decoding the Canadian Banking Industry June 2014
Disclaimer This document is the proprietary and exclusive property of Sutherland Global Services except as otherwise indicated. No part of this document, in whole or in part, may be reproduced, stored, transmitted, or used for design purposes without the prior written permission of Sutherland Global Services. The information contained in this document is subject to change without notice. The information in this document is for information purposes only. Sutherland Global Services® disclaims all warranties, express or limited, including, but not limited, to the implied warranties of merchantability and fitness for a particular purpose, except as provided for in a separate software license agreement. All confidential or proprietary information contained in Sutherland’s response shall at all times be and remain the sole and exclusive property of Sutherland Global Services, Inc.
©©2014 GlobalServices Services Inc., rights reserved. Privileged and confidential information of Sutherland Global 2010Sutherland Sutherland Global Inc., All All rights reserved. Privileged and confidential information of Sutherland Global Services Inc. Services Inc.
www.sutherlandglobal.com
Leading Canadian banks are expanding their international footprints through cross-border acquisitions Growing M&A Activity • Over the last four years, M&A activity by Canadian financial services companies, especially with the banks has been on the rise. Having weathered the financial crisis better than their US and UK counterparts, Canadian financial services companies are looking to take advantage of depressed international asset prices and expand internationally through acquisitions • The Canadian banking industry has already begun to see this strategy play-out among the leading banks – For example, Scotiabank continues to expand its Wealth Management division through acquisitions in South America – Similarly, TD expanded its Automotive Loans division by acquiring Chrysler Financial in 2011 for CAD 6.3 Bn. Finally, Bank of Montreal has furthered its US presence through the acquisition of Marshall & Ilsley in 2011 for CAD 4.1 Bn
Large-Scale Deals in Canadian Banking Sector Since 2008 Date
Value (CAD Mn)
Location
TD Bank Financial Group
Acquirer MBNA Canada
Domestic acquisition
1-Dec-2011
6.8
Canada
TD Bank Financial Group
Chrysler Financial Services LLCPrivate,
Private, cross border acquisition
1-Apr-2011
6.3
USA
RBC Financial Group
Ally Credit Canada Limited and ResMor Trust Company, Inc
Domestic acquisition
23-Oct-2012
4.1
Canada
BMO Financial Group
Marshall & Ilsley Corporation
Public, cross border acquisition
5-Jul-11
4.1
USA
Scotiabank
ING Bank of Canada
Private, cross border acquisition
29-Aug-12
3.1
Canada
Scotiabank
DundeeWealth Inc.
Public, cross border acquisition
1-Feb-11
2.5
Canada
Scotiabank
CI Financial Corp
Private, domestic acquisition
12-Dec-08
2.1
Canada
RBC Financial Group
Bluebay Asset Management Plc
Public, cross border acquisition
17-Dec-10
1.6
UK
RBC Financial Group
Phillips, Hager & North Investment Management Ltd
Private, domestic acquisition
1-May-08
1.4
Canada
RBC Financial Group
RBC Dexia Investor Services
Private, cross border acquisition
27-Jul-12
1.1
UK
Scotiabank
Banco Colpatria Red Multibanca Colpatria S.A. (51% Stake)
Private, cross border acquisition
18-Jan-12
1.0
Colombia
•
Target
Deal Type
With Canadian led M&A activity on the rise, the next two to three years presents a unique opportunity for Canadian Banks to take a leading position in the international financial services market. However, to achieve this goal through international acquisition requires that Canadian Banks improve their approach to international M&A
Source: Annual Report; Sutherland Research
© 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com June 3, 2014
2
Banks in Canada are increasingly using advanced technology to provide better service to customers IT Optimization has become a Critical Focus for Canadian Banks • Corporate IT has become an integral part of the service delivery model and is embedded in every aspect of business, from data entry to enabling and shaping business strategy at the highest levels • Moreover, IT optimization delivers major strategic gains as banks strive to build efficiencies and consolidate resources. These include business analytics, the front and back offices, and overall banking infrastructure – Bank of Montreal has centralized its firm-wide market data management and enhanced its market data infrastructure to enable the bank to source and distribute market data more efficiently and better manage its data spend
Growing Adoption of Mobile Banking and Exploring Opportunities in Other Technologies • Canadian banks remained conservative, something that worked in their favour during the financial crisis, but which has slowed the pace of innovation when it comes to integrating mobile devices. However, it hasn’t stopped people from banking on their mobile devices – According to Bank of Montreal Mobile Banking Survey (September 2013), 70% of Canadian smartphone owners use banking apps. The popularity of banking apps have surged too, with two-thirds of users having downloaded a financial app over the last 12 months • ING Direct, recently rebranded as Tangerine, has been a leader in the mobile banking space since launch in Canada. With no physical branches, ING Direct took advantage of online and smartphone technology, as it has been at the core of the company’s growth – Last summer, ING Direct launched an app that allows users to virtually cash a cheque by taking a picture of it with the camera on their phone • Moreover, banks are also looking for the opportunities such as near field communication (NFC), GPS, social media and the huge data mining opportunity. However, the big challenge in all this is to maintain security thresholds so that users trust the technology
Source: Sutherland Research
© 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com June 3, 2014
3
The banking industry in Canada had grown steadily in the past five years Assets* (CAD Bn)
Loans* (CAD Bn)
4,000 3,500 3,000
3,218.8 2,599.1
3,452.8
3,643.5
2,500 2,018.2 2,000
2,817.9
1,771.4 1,498.6
2,500
1,500
2,000
1,611.3
1,230.9
1,000
1,500 1,000
500
500 0
0 2009
2010
2011
2012
2013
2009
Total Deposits* (CAD Bn)
2011
2012
2013
Net Interest Income* (CAD Bn)
3,000
70 2,425.8
2,500 2,000
2010
2,220.1 1,702.1
1,832.8
1,998.1
57.0
60 50
60.2
51.8 44.8
45.7
2009
2010
40
1,500
30 1,000 20 500
10
0
0 2009
2010
2011
2012
2013
2011
2012
2013
Note: *Total 8 Banks include – BMO Financial Group, Canadian Western Bank, CIBC, Laurentian Bank of Canada, National Bank of Canada, RBC Financial Group, Scotiabank, TD Bank Financial Group. Source: CBA; Sutherland Research
Š 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com June 3, 2014
4
Benchmarking of Leading Canadian Banks (1/2)
200 200
BMO Financial Group
2009 CIBC
447.8 408.7 495.9 247.6 242.3
411.5 378.2 367.7 2012 Scotiabank
2013
BMO Financial Group
5.6 5.4
6
200
CIBC
16.1
8.5 7.5
13.3 11.4 7.3
8
10.0 8.8
8.6
10
12.5
11.5 10.3
12
11.3 11.5
14
13.7
16
15.0
18
366.8 278.9
487.8 508.2 463.6 328.7 300.3
249.3 246.7
430.0 433.0 361.7 236.2 223.1
481.1 444.2 396.4 302.9 255.4
700
391.0 398.3 350.4
2011
Royal Bank of Canada
Net Interest Income (CAD Bn) 591.1 558.5 489.1
Total Deposits (CAD Bn) 600
2010
TD Bank Financial Group
9.0
Scotiabank
2013
7.5 7.1
Royal Bank of Canada
2012
11.4
2011
6.2 6.2
2010
TD Bank Financial Group
300
237.3 212.9
0 2009
400
377.2 351.5 325.0
100
0
500
197.8 214.2
300
320.7 364.9 304.0
400
255.5 284.2 288.4
537.3 398.4
500
279.1 246.7
862.5 860.8 743.8
600
162.1 175.6
400
Total Loans (CAD Bn)
811.1 825.1 668.0 525.4 393.4
600
557.2 655.0 496.5 388.5 335.9
800
619.5 726.2 526.7 411.6 352.0
1,000
735.5 793.8 594.4 500.6 383.8
Total Assets (CAD Bn)
2
0
0.0
4 100
0 2009 TD Bank Financial Group
2010
2011
Royal Bank of Canada
2012 Scotiabank
2013
BMO Financial Group
2009 CIBC
TD Bank Financial Group
2010
2011
Royal Bank of Canada
2012 Scotiabank
2013
BMO Financial Group
CIBC
Source: CBA; Sutherland Research
Š 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com June 3, 2014
5
Benchmarking of Leading Canadian Banks (2/2)
56.2%
63.1%
53.5%
52.6%
52.8%
55.8%
63.1%
52.0%
50.9%
51.3%
56.4%
61.5%
53.9%
51.3%
52.2%
58.5%
61.9%
51.8%
51.6%
62.2%
57.7%
62.3%
53.7%
60%
50.8%
80%
68.4%
Efficiency Ratio(%)
40% 20% 0% 2009
2010
TD Bank Financial Group
2011
Royal Bank of Canada
2012 Scotiabank
2013
BMO Financial Group
CIBC
0.4%
0.9%
0.8%
0.9%
1.0%
0.8%
0.8%
0.8%
1.0%
0.9%
0.8%
0.7%
0.6%
0.9%
0.8%
0.8%
0.7%
0.7%
0.7%
0.3%
0.7% 0.5%
0.6%
0.6%
0.8%
0.5%
1.0%
0.7%
1.2%
0.8%
ROA (%)
0.2% 0.0% 2009 TD Bank Financial Group
2010 Royal Bank of Canada
2011
2012 Scotiabank
BMO Financial Group
2013 CIBC
• Efficiency continues to be important to bank earnings growth, given the ongoing slowdown in Canadian lending. The Canadian banks on an average maintained higher efficiency ratio of 52.5% • The efficiency ratio of TD Bank has drastically reduced due to increased expenses related to acquisition, investments in new stores, and other planned initiatives both in US and Canada Source: Company Annual Reports; Sutherland Research
© 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com June 3, 2014
6
Consumer Satisfaction Ratings 2013 Canadian Retail Banking Customer Satisfaction Study – Big Five Banks & Midsize Banks Product Offerings
Facility
Account Information
Fees
Channel Activities
Financial Advisor/ A/c Manager
Problem Resolution
Overall Satisfaction
TD Canada Trust
BMO Bank of Montreal
CIBC
RBC Royal Bank
Scotiabank
ING Direct Canada
N/A
ATB Financial
HSBC Bank Canada
Laurentian Bank of Canada
N/A
Manulife Bank
N/A
N/A
National Bank of Canada
President's Choice Financial
N/A
Bank
Big Five Banks
Midsize Banks
Source: J.D. Power
© 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com June 3, 2014
7
Thank You
Š 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com June 3, 2014
8