TD Bank Financial Group is buying the U.S.-based Epoch investment management business for $668 million in cash, a relatively modest amount for one of Canada's biggest banking groups.
The purchase was announced as TD released its fourth-quarter and full-year results for 2012. TD reported it had $1.6 billion of net income in the fourth quarter, bringing the total for year ended Oct. 31 to $6.47 billion.
The company is involved in a wide range of financial services such as mortgage lending, credit cards, investment management and capital financing. Its base is in Canada but it has been growing steadily in the United States for several years.
"We've been looking for an opportunity to acquire a U.S. asset manager to build our North American Wealth business, which is a key growth area for TD," said Mike Pedersen, who the TDg group that includes wealth management
"This acquisition makes strategic sense for TD. It will broaden our offer for institutional and retail clients in Canada and will immediately and significantly strengthen our U.S. Wealth business."
Shareholders of Epoch Holding Corp. (Nasdaq:EPHC) will receive US$28 per share, a 28 per cent premium over the stock's closing price on Wednesday.
On the earnings front, TD joined Canada's other major banks in beating analyst estimates in the fourth quarter.
Its profit for the three months ended Oct. 31 amounted to $1.66 per share before adjustments, down two cents per share from the same time last year. On an adjusted basis, TD had $1.83 per share of diluted earnings — up from $1.75 per share a year earlier and two cents a share above a consensus estimate.
"The fourth quarter earnings contributed to a strong year for TD," said Ed Clark, Group President and Chief Executive Officer.
"We achieved those results despite a tough operating environment, demonstrating the strength and resilience of our business model."
TD was one of the Canadian banks that was put under review by Moody's Investors Services, which rates the credit of governments, public sector institutions and corporations. Mood said the review was prompted by concerns about consumer debt levels and home prices in Canada, where the banking sector is the major source of mortgage lending.
However, both Royal Bank (TSX:RY), which began the current round of banking results last week, and Bank of Montreal (TSX:BMO) beat analyst estimates with substantial profit increases.
Analysts had estimated that on average TD would have adjusted earnings of $1.81 per share and revenue of $6 billion, according to consensus estimates compiled by Thomson Reuters.
TD Bank is one of North America's biggest retail banks, with operations across Canada and in several parts of New England and the U.S. northeastern and mid-Atlantic states.
It announced last month that about 260,000 customers from Maine to Florida could be affected by the loss of unencrypted backup data tapes, which TD said had been misplaced during transport in March. TD said there was no evidence criminal activity linked to the lost tapes.
On Oct. 23, TD announced it was acquring the U.S. credit card portfolio of Target Corp. under a seven-year agreement. The portfolio has about five million active accounts under both Visa and private-label brands.
The move comes as the U.S. retailer prepares to enter the Canadian marketplace next year. Target (NYSE:TGT), which is based in Minneapolis, plans to open 124 stores across Canada starting in March and April 2013.
The bank announced Oct. 29 that it expected TD Ameritrade Holding Corp. to contribute $51 million to its fourth-quarter. The Toronto-based bank owns a large minority stake in the discount online brokerage firm.