TD Bank to sell shares in discount brokerage
By Bloomberg News
March 31, 1999, 1:20 p.m. PT
Toronto-Dominion Bank, Canada's fifth-largest bank by assets, will sell about 10 percent of its global discount brokerage business in a share offering, taking advantage of investor enthusiasm for Internet brokers to fund acquisitions.
TD Bank owns U.S.-based Waterhouse Investor Services. It also owns Green Line Investor Services in Canada, Hong Kong, the U.K., and Australia. Its discount brokerages have 2.3 million client accounts and C$135 billion (US$89 billion) in assets.
The stock fell C$0.05 to C$69.95 in midafternoon Toronto trading. Earlier, it slid as much as C$2.25 after the announcement. The stock has risen 30 percent this year.
"People have been chasing the stock up in anticipation of a spin-off" said Stephen Gauthier, who manages international funds at Pictet & Co. in Montreal, which oversees US$70 billion in global assets. "It's a good step. It increases shareholder value, but I think people expected something a bit bigger.''
TD Bank said in January it was exploring taking the businesses public to use the stock as currency to finance acquisitions. Its decision follows similar moves by U.S. rivals amid enthusiasm by investors and consumer demand for online trading. Donaldson, Lufkin & Jenrette earlier this month said it will sell equity in DLJ Direct, its online brokerage unit, by midyear. Fleet Financial Group, the eighth-largest U.S. bank, is considering spinning off its Suretrade online brokerage.
Online trading has soared 75 percent since September to more than one in seven U.S. stock transactions, helping push the market value of Schwab past that of Merrill Lynch.
During the same period, online brokerage stocks have soared. Shares of E*Trade and Ameritrade have jumped more than fivefold, while Schwab shares have more than tripled.
Schwab is trading at about 80 times estimated earnings, compared to about 17 times earnings for TD Bank.
The proposed name for the new unit will be TD Waterhouse Securities, which will be a U.S. holding company for all of the bank's worldwide discount brokerage and online trading businesses, the bank said.
"It's a strong statement that we'll do whatever it takes to create shareholder value,'' chief executive Charles Baillie told reporters after the bank's annual shareholders meeting in Montreal. "We believe we'll unlock some of the value in TD. It also gives us a publicly traded stock which we can use to make acquisitions.''
No size or price has been set for Toronto-Dominion's offering, TD said. The bank plans to file a preliminary prospectus next month. The offering will be made to investors in Canada and the United States. TD said it may also make the shares available outside of North America.
Unlike DLJ, TD is not creating a tracking stock. Tracking shares, which carry no voting rights or claim on corporate assets, reflect the performance of the unit separately from the that of its parent. The bank said it expects this offering to boost its regulatory capital.
TD Bank now averages a total of about 90,000 trades a day in discount brokerage and online trades. Waterhouse averaged about 58,500 online trades a day, more than Fleet's Suretrade and Quickway.net, which average about 14,000 trades a day. In 1996, TD Bank averaged about 12,000 to 14,000 trades a day.
"It's the prize asset, but this structure allows them to build it on better terms than they could perhaps otherwise,'' said John Leonard, a bank analyst at Salomon Smith Barney in London. "It helps them in two ways: to the extent they need capital, it raises it. Only doing 10 percent allows them the flexibility to use these shares to buy other discount brokerage businesses.''
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