Many Canadian banks stepping up their footing in US

Canadian bankers have decided that the United States looks like a warm and safe haven to seek new business. Thus, they have descended on the US like so many winter cold fronts.

In recent months, the Royal Bank of Canada, that nation's largest, has added capacity; the Canadian Imperial Bank is expanding operations, including opening several new branches in the US; the Bank of Nova Scotia is increasing the size of its US staff by 15 percent; and the Bank of Montreal has increased its staff and reorganized to give its US bankers more responsibilities.

One reason for the US moves, says William Snook, managing director of the Royal Bank, is a natural tendency by Canadian banks to follow Canadian business. Real estate developers in particular have been active in the US, with such firms as the Toronto-based Olympia & York building in New York; the Vancouver-based Daon Development in California; and the Ontario-based Cadillac Fairview in the Southwest.

Second, says Al Flood, vice-president for US operations for Canadian Imperial Bank, Canadian banks have recently noticed an expansion by US banks in Canada. Thus, Canadian banks are in part fighting back by expanding in the US and in part cementing their already-established business ties.

A third reason, James Byrnes, senior vice-president of the Bank of Montreal, says, is an awareness that Canadian banks must operate in an international marketplace -- the same ways companies do.

Finally, Peter Godsoe, executive vice-president of the Bank of Nova Scotia, notes that "there isn't enough business in Canada to justify just doing business there."

Another good reason is that banking can be more profitable in the US. For example, last spring, when interes rates peaked, then fell sharply, US bankers profited handsomely, because their borrowing costs dropped faster than their lending costs. In Canada, however, lending rates dropped faster than borrowing costs. Thus, at the Royal Bank, international operations for the bank's third quarter represented the only gain in the bank's earnings, up about 50 percent over the third quarter of last year and up slightly from the second quarter.

What's more, international operations represented 55 percent of the bank's earnings while only employing 35 percent of the its assets. "Other Canadian banks have had similar results," Mr. Snook of the Royal Bank remarks.

Although Canadian bankers expect their fourth-quarter earnings to improve in Canada because of improved borrowing and lending spreads, they still expect their US and international profits to grow faster than their domestic profits.

The Canadian move into the US has taken several forms. Royal Bank, for example, recently purchased the Banco de San Juan in Puerto Rico, adding 15 branches to its existing six branches on the island. On the mainland, however, Royal Bank, Canada's largest bank, and the fourth-largest in North America, has stuck to commercial wholesale banking. Its strategy, Mr. Snook says, is to find medium-size US companies that are in need of US financing. This marks a change in strategy for Canadian banks, which have mainly been concerned with financing US companies' Canadian subsidiaries.

To carry out its strategy, Royal Bank has begun an aggressive marketing program with "calling officers." Executives of US banks, has also bought prime season box seats to New York Yankees baseball games.

After an initial interest in acquiring some of the retail branches of Bankers Trust Company, the Bank of Montreal has also decided that commercial banking activities in the US are of more interest. Mr. Byrnes of the bank says it has not ruled out an acquisition in the commercial field, since "it's very hard to build up business from scratch."

At the Bank of Nova Scotia, the emphasis is on its international scope. The bank proudly points out that it has been in the US for 148 years, first establishing itself when Canadian cod fishermen brought their catch to Boston and New York. With nearly 50 percent of its $40 billion in assets in US dollars , the bank is a major participant in many international loans.

The Canadian Imperial Bank uses its West Coast subsidiary, California Canadian bank and its 26 offices, as a marketing tool for companies interested in doing business in both Canada and the US. And, the bank says, it would not be averse to further expansion if it thought the political climate were right.

One of the strongest areas for the banks is in Texas. The Calgary-Dallas connection, as it is known, has been quite beneficial for the bankers, as oilmen have sent money from Texas up to Calgary, Alberta, to invest in the oil and gas exploration in the energy-rich province.

Do US banks consider the Canadians a threat"

One New York banker, who prefers not to be identified, answers: "The Canadians will find the US a very competitive marketplace. And if they can find a niche for themselves, fine." But, he adds, "they have to play by the same rules as the US banks."

In fact, the Canadian banks are currently bound by the McFadden Act, which bans interstate banking. Should the McFadden Act be lifted, the Canadians would initially probably be eager to open up branches in Florida. During the chilly Canadian winters, scores of Canadians migrate to Florida, providing a potential market for the bankers.