DBRS Comments on National Bank’s Acquisition of TD Waterhouse Institutional Services

DBRS views National Bank of Canada’s (National or the Bank) announcement of an agreement to acquire TD Waterhouse Institutional Services as consistent with the Bank’s strategy to expand its wealth management capabilities. Given the size of the acquisition and National’s existing experience within the institutional services business through its Correspondent Network, the transaction has no rating implications.

The purchase price of $250 million, in cash, is subject to adjustments based on the retention of assets. Management has indicated the acquisition is expected to be accretive to National’s earnings per share in 2014 and 2015 of $0.12 and $0.14, respectively. The Basel III Common Equity Tier 1 ratio is estimated to decrease by 40 basis points but will remain in excess of 8.0% after closing, which is expected to be in calendar Q4 2013, subject to regulatory approvals.

TD Waterhouse Institutional Services supports over 260 market intermediaries that manage $34 billion in assets under administration. The combination of the Bank’s Correspondent Network and TD Waterhouse Institutional Services will make National a leader in the institutional services business with 408 market intermediaries overseeing over $84 billion in assets under administration. The acquired business is primarily located outside of Québec, which provides some geographic diversification. Notwithstanding the added scale benefits, one of the integration challenges for National will be retaining market intermediaries.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations (June 2012), DBRS Criteria: Rating Bank Preferred Shares and Equivalent Hybrids (June 2009) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on our website under Methodologies.