TD Bank's CEO proffers up government backstop to investors, that doesn't actually exist?

Toronto-Dominion CEO ‘Wrong’ to Suggest Aid Guarantee

By Theophilos Argitis and Sean B. Pasternak

Jan. 23 (Bloomberg) -- Toronto-Dominion Bank Chief Executive Officer Ed Clark was “absolutely wrong” to suggest the bank had the implicit promise of a bailout under any circumstances, a senior Canadian government official said.

There are “no guarantees” for companies that make “stupid decisions,” said the official yesterday in Ottawa, who spoke on condition he not be identified.

Clark said Jan. 8 that preferred shares the bank was planning to sell were attractive because investors considered them effectively backed by a government guarantee. “Maybe not explicitly, but what are the chances that TD Bank is not going to be bailed out if it did something stupid?” Clark told investors at a conference in Toronto sponsored by RBC Capital Markets.

The government official’s response to Clark’s comments came just five days before Finance Minister Jim Flaherty releases his budget, which will include stimulus spending and measures to bolster the availability of credit to jolt the economy out of recession. The plan will include new powers for the government to inject capital into banks if necessary, Flaherty has said.

Flaherty has said access to credit is the No. 1 concern of business owners and last month blamed banks for not doing enough to increase lending.

New measures might include efforts to revive Canada’s market for short-term corporate debt and bolster credit for car purchases, Flaherty told reporters this month.

Already, the government is providing guarantees on more than C$200 billion ($162 billion) of bank debt and has pledged to buy as much as C$75 billion in mortgages from banks to free up cash for loans to consumers and businesses.

Clark told the conference this month that Canadian banks may stand alone among global lenders in not requiring government help.

“The base point Ed was making is that Canadian banks are in a position of strength, and he clearly credits the role the government has played in how the banks have fared on a global basis,” bank spokesman Simon Townsend in Toronto said in an e- mailed comment.

The government official said the financial support is aimed at industries “facing challenges,” and not intended as an “insurance policy” for badly managed companies.

Canadian banks have raised about C$9 billion in capital since the end of October through stock sales to bolster balance sheets amid the recession. The average profit at Canada’s six main lenders declined 37 percent for the year ended Oct. 31, driven lower by about C$14 billion in combined debt writedowns.

Toronto-Dominion has raised C$2.93 billion selling preferred shares, common shares and capital trust notes since October. The bank said it will raise as much as C$375 million from a preferred share sale announced yesterday.

Toronto-Dominion, Canada’s second-largest bank, fell 84 cents, or 2.1 percent, to C$38.83 at 4:16 p.m. in Toronto Stock Exchange trading. The stock has fallen 43 percent in the last 12 months.

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net.
Last Updated: January 23, 2009 16:19 EST