“In the 1990s the focus in the banking industry was on globalization,” says Moti Jungreis, Vice Chair and Head of Fixed Income, Currencies and Metals, at TD Securities. “Since the crisis, growing regulatory pressure and rising capital requirements has shifted the focus back towards regionalization. With many banks in the US and Europe unable to generate sufficient return on equity to deliver growth to their shareholders, there has been a retrenchment from unprofitable businesses and a refocusing on domestic operations.”
A Bigger Footprint in the US Capital Market
This has unlocked a wealth of new opportunities for TD Securities, the broker-dealer unit of Canada’s Toronto-Dominion Bank (TD Bank), which over the last decade has been expanding rapidly in the US. “We used to think we had 30 or 40 competitors in the US,” says Jungreis. “Today, we believe we have no more than 10. You could almost argue that in 5 to 10 years there may not be enough banks in the US to sustain the growth of the capital market either from the perspective of issuers or the buy-side.”
TD Bank’s turbocharged growth in the US commercial and retail banking market has dovetailed neatly with the expansion of TD Securities’ investment banking franchise, which is now ideally positioned to support investors in their hunt for yield. This is a franchise that has been recognized worldwide for its success in non-core dollars for the last two decades, but the roll-out of its fixed income business in the dollar market was perfectly timed. “The expansion of this platform came at a time when the dollar was becoming the highest yielding currency in the G7, which encouraged investors from Europe and Japan to increase their US dollar holdings,” says Jungreis.
For TD Securities, which had already developed strong relationships with the world’s most prestigious borrowers through its leadership in currencies such as Canadian and Australian dollars, this made origination and distribution of US dollar-denominated sovereign, supranational and agency (SSA) bonds a natural fit. John Moore, Head of U.S. & International Fixed Income, says that TD Securities’ commitment to its US dollar fixed income franchise was easy enough to demonstrate to issuers and investors alike, given the size and visibility of its US presence. “We now have more branches in the US than we do in Canada,” he says. “So whenever we’re asked about our commitment to the US market, we tell issuers and investors to see how many TD branches they can spot next time they’re in New York.”
An Investor-Driven Franchise in Metals and Currencies
It is not just the TD Securities dollar fixed income business that has thrived in recent years. The metals business it launched in mid-2009 has also derived extensive synergies from the depth of TD Securities’ corporate relationships and hedging capabilities. More recently, it has also started to support the hunt for yield across the global investment community. Michael Twaits, Global Head of Foreign Exchange and Metals, explains that TD Securities has recently recruited a number of people in New York and London to support a new institutional distribution initiative in the metals market. “Given the strength of our relationships with investors across so many asset classes, adding metals was a natural extension of our distribution model,” says Twaits. “There is a perception among investors that we may be nearing the bottom of the commodities cycle.”
Currencies are another asset class that institutional investors are increasingly exploring as an alternative way of generating uncorrelated returns in today’s ultra-low yield environment. As it has done in the fixed income and metals markets, TD Securities has refined its model in the FX market proactively to cater to the shifting requirements of investors. “Up until two years ago, our currency business was largely North American-centric,” says Twaits. “Since then, we have invested significantly in customized FX execution and overlay services to support institutional investors’ search for alpha.”
With subdued growth and low returns likely to persist over the next few years, TD Securities is committed to partnering its institutional investor clients in their continued quest for alpha. “Increasingly, the global investor base will need to look beyond credit and duration as a means of adding value,” says Moore. “We believe our value proposition across a growing range of asset classes will support institutions in this environment.”
Jungreis agrees, adding a note of cautious optimism for the economic outlook. “We need to watch developments in China and in global commodities prices,” he says. “I see oil prices staying in the $40 to $50 range, which will be supportive for economic growth and capital market flows. Against that backdrop, we are confident that we can continue to grow without compromising on our culture or taking excessive risks.”
