Americas Canada Derivatives House of the Year: TD Securities
For its customer-centric growth from a Canadian bank into the wider North American market, TD Securities is our Canada Derivatives House of the Year.
The TD story over the past decade has been its evolution from a Canadian bank to a North American bank. Take a walk around New York, and the green-and-white logos on every street corner are as likely to be a branch of TD as they are to be a Starbucks. It now has more branches in the US (1,220) than in Canada (1,088) and is the sixth biggest North American bank by assets and market capitalisation.
The retail expansion in the US has been matched by similar success in the wholesale business, where over the past decade it has transitioned from being a traditional dealer in Canada to become an integrated North American one with global execution capabilities. The strategy for wholesale banking is to be the top ranked investment dealer in Canada, while in the US it looks to grow client relationships through delivering trusted advice in more focused sectors.
The derivatives business has taken that journey along with the rest of the bank, growing alongside TD’s client relationships.
“As a Canadian bank we’ve always generally been number one or two in the league tables across most segments,” says David Chan, director, Market Risk Solutions Group at TD Securities in New York. “Our strengths have traditionally been in energy, media and telecoms in Canada and that’s true now in the US where we have built a stronghold in those areas.”
TD has one big advantage and that’s the size and strength of its balance sheet. “Our deposit base is significant,” says Chan. “We have a strong balance sheet and a great credit rating and that’s definitely a driver for the lending business — and at the same time also for the derivatives business.”
It’s clearly helpful when clients want a strong counterparty in times of stress, but its Aa1/AA- (Moody’s/S&P) derivative counterparty ratings also help TD compete by giving it access to cheaper funding. “The derivatives business has become a lot more capital intensive, so having a better cost of funds and credit rating gives you a competitive advantage,” says Chan.
“The lending side has been a big driver for derivatives and where we have established a lot of very strong relationships,” he continues. “The derivatives business is in some ways very similar to the lending business: it’s a large credit commitment and the exposure is for an extended period of time — it is requisite to forge long‑term partnerships with our clients.”
Recent years have seen a pull-back from the Americas by European houses that have needed to conserve capital and reduce balance sheets to meet regulatory and shareholder demands back home. That created an opportunity for TD to step in. “We have been deepening our relationships with our clients, whether its via novation on a derivative or in terms of elevating our lending relationships and getting a lot more opportunities to build out our portfolio,” says Chan.
Another driver of its growth has been expansion of its global execution capabilities and it now trades derivatives out of Singapore, London, Toronto and New York. “Our strength historically was obviously in Canadian dollars and we’ve helped numerous clients issue their inaugural Canadian bond and provided them support in swaps and FX, but we’ve expanded well beyond the Maple market now,” says Chan.
He adds that since net investment hedging was made easier for corporates under new IFRS 9 and FASB guidance, the derivatives desk has become more involved in working with its debt capital markets and FX colleagues to find optimal solutions for clients. “The growth of our franchise has enabled us to look beyond the Canadian and Australian dollar markets that we are best known for and assess issuance in different currencies, both organically and synthetically,” says Chan.
The bank is proud of its distinctive culture — it sets out its purpose “to enrich the lives of our customers, communities and colleagues” — and Chan says that was a focus for its efforts during the Covid-19 crisis this year.
“Our success cannot come without our clients’ success, and at TD we feel that we are really well positioned to grow with our clients,” he says. “During the crisis a lot of clients needed liquidity, restructuring ideas and risk management ideas. There were a lot of opportunities for our clients through the derivatives markets. Fortunately, TD was well positioned to support our clients’ needs.”