There was a small item in the paper last Wednesday entitled “TD gets a double-dip from Fortis transaction.” The transaction involved repatriating the old B.C. Gas distribution business back into Canadian hands (Yeh!). U.S.-based Kinder Morgan sold Fortis the assets for $3.7 billion.

TD Securities was the advisor to Kinder Morgan on the sale. But they also took a leading role (they were on the top line with CIBC and Scotia) in Fortis’ equity issue to raise money for the purchase. The article noted how rare it is that an investment bank ends up working for the seller and the buyer on a transaction (Note: TD had permission from Kinder Morgan to participate in Fortis’ issue).

I think this example speaks volumes about the state of investment banking today and the many conflicts that bankers face. At its most basic, investment banking is fraught with conflicts (i.e. pricing the issue to please the seller and the buyer). It is always a balancing act.

But some conflicts are self-inflicted. In this case, TD decided to play for both teams at the same time. In the U.S., there are numerous examples of this. Banks like Goldman Sachs act as advisor and selling agent on one side of a transaction (conventional investment banking) and are the buyer of the business on the other side (through their private equity division).

I’m amazed that the authorities have not made a bigger deal of this, particularly in the U.S. where it is more prevalent. Perhaps, the impact of Elliot Spitzer’s move into the political arena is already being felt.

This issue highlights to me the inconsistencies that are so apparent in securities regulation today. Without a second thought, investment bankers can put themselves in a situation like the one outlined above, while executives of public companies have to jump through all kinds of hoops to satisfy the SEC. For hedge funds, it’s like the wild, wild west whereas mutual funds are scrutinized from every angle.

You may remember a few years ago when Spitzer led the blitzkrieg against Wall Street. He forced the integrated investment banks to separate their research departments from the investment bankers. He wanted the research to be independent. In the context of what is going on today, that whole kafuffle is laughable.

I think the regulators have got to recalibrate their priorities and they need to do it soon. There are areas of the market that are flying below the radar (i.e. hedge funds, structured products, investment banking conflicts) while other areas are experiencing extreme levels of regulatory due diligence (i.e. mutual funds, corporate governance).

Unfortunately, any changes won’t come soon enough for Steadyhand. We’ve already gone through all the hoops.