As Canadian borrowers increasingly access the U.S. market to issue "B" loans, U.S. banks are making more of an impression on the Canadian bank market. Richard Fortin, cfo of Quebec-based supermarket chain Alimentation Couche-Tard, said of the U.S. banks, "They've realized that there are some companies in Canada that do cross-border transactions like Couche-Tard, [The Jean Coutu Group], Bombardier [Recreational Products] and of course they feel they can help the Canadian company to enter the U.S. market. They want to increase their market and they see the opportunity with Canadian companies."
Institutional issuance by Canadian borrowers has increased significantly in the last two years. According to Dealogic, 2004 year-to-date volume is $4.6 billion and 2003 volume was $5.1 billion compared to only $1.4 billion in 2002. The predominant U.S banks for leading Canadian issues are Citigroup and J.P. Morgan. Meanwhile, the most active Canadian banks are RBC Capital Markets, TD Securities, CIBC World Markets, Scotia Capital and Bank of Montreal.
Donald Chu, an analyst with Standard & Poor's, said the preference for good distribution may lead Canadian issuers to choose a lead from across the border, where the deal will be distributed. "When you have Canadian issuers that are going into the U.S. markets to tap the capital markets often they will go to a U.S. player, given the fact that they have better distribution in the U.S. and they probably have a better understanding of their home market as well because that is where they make the bread and butter," he said.
Still, the Canadian banks lead the lion's share of the non-institutional business and only one banker at a Canadian firm was concerned. "They're bringing their big balance sheets up here," he said. Other bankers were not convinced that the U.S. banks will move beyond the institutional market. It is still somewhat of a protected market. "It's an aggressive market--you have to be aggressive with your bids. It's capitalism at its finest," he said. Fortin thinks the competition between banks can only benefit his company. "I like the situation thoughthat means everybody is going to have to be very competitive in order to do business with our company," he said.
Canadian banks, meanwhile, are laying the groundwork for the development of secondary trading of Canadian loans and the introduction of non-bank buyers into the Canadian loan market that will then grow a Canadian-denominated "B" market (LMW, 11/1).
