TD buys Cowen for $1.3 billion to bolster financial markets

(Bloomberg) – The Toronto-Dominion Bank has agreed to buy U.S. brokerage firm Cowen Inc. for $1.3 billion in cash, bolstering its presence in U.S. financial markets just months after reaching a landmark deal to expand its retail operations in the country.

Toronto-Dominion agreed to pay $39 per share, according to a statement released Tuesday. The acquisition is expected to be “moderately accretive” to adjusted earnings per share next year, the Toronto-based company said. Bloomberg News reported last month that the bank was evaluating the deal.

By buying Cowen, Canada’s second-largest bank addresses its relative weakness in the financial markets sector compared to larger competitors such as Royal Bank of Canada and helps protect the company against potential downturns in its operations. retail banking. The deal also deepens Toronto-Dominion’s reach in the United States, as well as its planned $13.4 billion acquisition of First Horizon Corp., announced in February.

“Cowen is a leading independent broker with a leading U.S. equity business and a strong, diversified investment bank which, combined with TD Securities, will enable us to accelerate our strategic plans for growth in the U.S. said Toronto-Dominion CEO Bharat Masrani. the statement.

Toronto-Dominion’s wholesale banking business accounted for about 11% of the company’s fiscal 2021 revenue. This compares to the roughly 21% Royal Bank generated from its financial markets division.

Cowen, which went public in 2006, saw its net profit soar 38% year-over-year to $289 million in 2020 in a record year for IPOs. Over the past 12 months, he has acted as bookrunner on 55 IPOs, serving as lead adviser on five of the listings, according to data compiled by Bloomberg.

Shares of the brokerage rose 7.9% to $38.31 as of 7:49 a.m. at the start of trading in New York.

With mergers in Canada’s highly concentrated banking sector blocked by regulators, Toronto-Dominion has long looked south for expansion. The company entered retail banking in the United States with the $3.8 billion purchase of 51% of Banknorth Group Inc. in 2004. Three years later, Toronto-Dominion doubled its presence in United States with the acquisition of Commerce Bancorp Inc. for $8.34 billion.

Toronto-Dominion had more than 1,100 branches in the United States at the end of its last fiscal year, and it is expected to gain about 400 more when its purchase of First Horizon is finalized. The deal would expand Toronto-Dominion beyond its East Coast footprint into markets such as Tennessee, Louisiana and Texas.

With the acquisition of Cowen, TD Securities will add the New York-based company’s 1,700 employees, bringing the total to 6,500 people in 40 cities around the world. The deal has been approved by the boards of both companies and is expected to be finalized in the first quarter of next year.

Cowen President and CEO Jeffrey Solomon will join TD Securities’ senior management, reporting to unit President and CEO Riaz Ahmed, and parts of the combined business will be known as name of TD Cowen, and will be led by Solomon.

Sale Schwab

To provide capital for the purchase, Toronto-Dominion sold 28.4 million non-voting common shares of Charles Schwab Corp. for about $1.9 billion, reducing his stake in the company to about 12% from 13.4%. Toronto-Dominion said it “currently has no intention of disposing of any additional shares” of Charles Schwab.

Toronto-Dominion shares underperformed those of two major Canadian peers with a strong U.S. presence – Royal Bank and Bank of Montreal – amid doubts over its ability to complete its takeover of First Horizon, based in Memphis, Tennessee. Toronto-Dominion shares had fallen 14% this year through Friday, more than Royal Bank’s 7.2% drop and Bank of Montreal’s 6.3% drop, and the worst performance among Canada’s six largest banks.

“There’s been quite a bit of underperformance for TD, and you can attribute the majority of that to what’s happening on the regulatory front,” Stifel Financial Corp. analyst Mike Rizvanovic said in a statement. interview before the Cowen deal was announced. “When you think about the dynamics of TD on where they make money and where they might deploy capital, if you’re on the wrong side of US regulators, that’s definitely not a good thing because it’s a market so important to them.”

President Joe Biden signed an executive order in July 2021 — seven months before Toronto-Dominion announced the First Horizon deal — that urged regulators to scrutinize bank mergers more carefully as part of a broader campaign to increase competition in the country. In June, Senator Elizabeth Warren called on regulators to block the deal, citing concerns about the bank’s practices after the Capitol Forum reported that Toronto-Dominion wrongfully pressured customers to open some accounts. Toronto-Dominion said the allegations were “completely unfounded.”

Regarding the agreement with First Horizon, “the regulatory approval process is well underway and we remain confident that we will complete the transaction” in the first quarter of fiscal 2023, spokeswoman Lisa Hodgins said in a press release sent by e-mail. The transaction “creates value for the organizations, employees, customers and communities we serve,” with community leaders in regions served by the two banks sending more than 300 letters of support for the merger to regulators, a- she declared.

(Updates with agreement details, information on First Horizon starting in the ninth paragraph.)

©2022 Bloomberg LP