Canadian bank merger ban about to be lifted

TORONTO - Canada's seven-year ban on bank takeovers, a restriction that left the country's biggest lenders dwarfed by foreign rivals, may be ending.

The Government plans to introduce guidelines by the end of the year that will permit mergers among Canada's five largest banks. To ensure broad political backing, the regulations contain an antitrust clause that prevents any one lender from having too large a market share by revenue.

The change, delayed for more than a year by Finance Minister Ralph Goodale, is likely to spark the first round of consolidation in the Canadian bank industry in more than four decades. Analysts said with the market-share cap preventing a merger between Royal Bank of Canada and Toronto-Dominion Bank, the two biggest lenders, No 4 Bank of Montreal and No 5 Canadian Imperial Bank of Commerce, were more probable targets.

"It's going to be wide open," said Alex Zivic, of the Signature Group in Toronto.

Mergers would help make Canada's banks more competitive after the Government in 1998 stopped No 1 Royal Bank from buying Bank of Montreal and scuttled a merger between Toronto-Dominion and CIBC. At the time, Royal Bank was about half the size of Citicorp. Today, its US$350 billion ($512 billion) in assets is dwarfed by Citigroup's US$1.5 trillion.

While allowing mergers, Goodale needs to preserve enough competition among Canada's 68 banks to win support from opposition parties. US regulators limit banks to 10 per cent of the nation's deposits, a cap that Bank of America, the second-biggest US lender, is close to breaching.

"This is a reasonable condition that has precedence in other countries," said Zivic. Bank of Nova Scotia chief executive Richard Waugh has campaigned for the freedom to make domestic acquisitions, saying they're needed to reduce costs and boost returns and to compete for business outside Canada.

Royal Bank stunned Canada's bank industry in 1998 with an agreement to buy Bank of Montreal. Toronto-Dominion and Canadian Imperial Bank of Commerce unveiled their own merger four months later. Paul Martin, then finance minister and now Canada's Prime Minister, blocked both deals.

Stymied at home, Canadian banks spent more than US$12 billion on acquisitions in the US during the past five years.

Banked up

A seven-year ban on banking takeovers may be about to end.

The restriction has left Canadian banks dwarfed by foreign rivals.

The change is expected to lead to the first consolidation of the banking sector in 40 years.

- BLOOMBERG