The Globe and Mail, Report on Business
Published March 20, 2010

There are more than a few money managers who, as large shareholders of the Canadian banks, harbour a secret desire to have a seat at the boardroom table. They've studied these institutions for years and feel they have something to offer. But in reality, they don't want the call because being a bank insider comes with too many restrictions. Not being able to freely trade one of Canada's largest and most liquid stocks is too high a price to pay.

So as we enter this unique period in our banking history, frustrated “shadow directors” like me can only give our speeches to business colleagues and defenseless family members at the dinner table. But if I could say my piece...

Mr. Chairman, could I please have the floor to address the board?

Thank you. Yes, I'll just take a few minutes.

Fellow directors, as you know, I'm one of the woolly old veterans here, and I can't tell you how proud I am. We're to be congratulated for how the bank has navigated through one of the world's worst financial crises. It has performed better than almost all the rest, and has maintained its position in the Great Canadian Oligopoly, which, while I know we're not supposed to talk in those terms, is very important to us.

But we shouldn't get too complacent. While we're basking in the glory, the best opportunity we may ever have to expand outside of Canada is staring us in the face. At every meeting we talk about being constrained by our borders, and yet we've got little to show for all those words.

Fortunately, our geographic limitations haven't stunted our growth so far, but we're running out of new product areas to enter and market share to gain in Canada. The initiative we discussed today to get into “consumer commodity loans” may prove successful, but new products areas like that don't have the same potential that investment banking, wealth management and insurance offered us 25 years ago.

As we heard today, our balance sheet is rock solid. We've been using the word “fortress” around this table and have just spent an hour talking about how we have too much capital for the business we're running. We've debated share buybacks and a dividend increase. As a director of four other companies, I can tell you these are nice problems to have.

Our stock price has doubled from the lows and now trades at a premium multiple to all but a handful of foreign banks. A good valuation and strong loonie give us an acquisition currency we've never had before. As Warren Buffett talked about in the shareholder letter that was distributed with the agenda, it's not only the price of the acquisition that's important, but the price of the currency as well.

Will our shares and international stature always be this high? Despite our public positioning about how the business environment warrants caution, we all know the bank is coming off a year when the situation has never been more favourable for what we do. It can't get any better. Credit spreads are great. Loan losses are peaking. And foreign competitors are retreating.

And yet, when the economy picks up and our credit losses start to come down, the spreads will narrow and there will again be lots of money competing for our clients' business.

Mr. Chairman, we have the opportunity to set the table for 10 more years of growth. Now is the time to establish a beachhead in a new geography. A place where we can replicate what we've done so successfully in our basic banking business here. A place that gives us a bigger platform for our team and approach. And a place where we can allocate our risk capital to our best competitive advantage.

We have an active M&A file on every banking property with more than 10 branches and most of those files were open when I got here. We can add value to any retail bank in the world. In that regard, our hard earned experience – and scars – in the U.S. market will help us.

Now, I know there are some reasons to wait. The bank supervisor wants us to lay low until the Basel capital guidelines are confirmed and our shareholders feel the same way. They want us to remain cautious and keep the dividends coming.

So we will take some heat in the short run when we announce a large acquisition, or even intimate that we're considering one. And the analysts will be quick to point out that our return on equity will be lower for the next few years.

But what the shareholders really like about our dividend is the growth rate, and if we're going to maintain the trajectory beyond the next couple of years, we'd better have more than a good Canadian franchise and some unfulfilled aspirations to expand elsewhere.

Mr. Chairman, when I step down in a few years, I don't want to do it knowing that we didn't take the bat off our shoulder when the fattest pitch in our history came over the plate. We might prefer that our legacy as managers and directors be limited to how we did in 2008, but it won't. It will reflect our performance and leadership on both sides of the crisis.