Canada's finance minister is expected to block two proposed bank unions, which would have ranked among the largest transactions in Canadian history, because of concern they would erode competition, sources said Sunday.
Finance Minister Paul Martin will deliver a decision on merger proposals by four of the country's Big Six banks this morning, a Finance Department spokesman said. At the same time, he will release reports on the mergers from the Office of the Superintendent of Financial Institutions and the Competition Bureau that were delivered to him Friday.
The reports apparently convinced Martin that the banks' consolidation would lead to unacceptable concentration in credit card services, retail and investment activities. Martin will leave little room for the banks to renegotiate their proposals any time soon when he releases the reports today.
Sources told Bloomberg News that Martin and the government will prevent a proposed acquisition of Bank of Montreal by Royal Bank of Canada, valued at $12.24 billion, and a planned merger of Canadian Imperial Bank of Commerce and Toronto-Dominion Bank, with a value of $8.7 billion, at least until new legislation is drafted.
"The banks are going to get hammered," said Bill MacLachlan, a partner at Calgary, Alberta-based Mawer Investment Management. "A veto is a veto, and that's information the market hasn't accounted for."
Bank of Montreal spokesman Joe Barbera said the bank is waiting for the minister's official announcement before taking any action. "Our increasing frustration is that while we may have been advanced with our action on Jan. 23, what we did has now been confirmed by 11 straight months of developments domestically and internationally that prove that in order to compete, we must evolve and change," Barbera said.
Representatives of CIBC and TD Bank declined to comment, while officials at Royal Bank couldn't be reached.
On Jan. 23, Royal Bank, the country's second-largest by assets, agreed to buy No. 3-ranked Bank of Montreal to create a company that, at the time, would have been North America's third-largest bank by assets. Less than three months later, CIBC and TD Bank said they planned to merge in a stock swap. CIBC is the nation's largest bank by assets and fifth by market size.
Most investors expected that the proposed unions would have to undergo changes, but investors may be disappointed by the uncompromising tone of Martin's statement. The stocks of the four banks may help send the market lower.
Toronto-Dominion Bank acknowledged for the first time on Dec. 4 that it expected the government might veto the proposals.