PRESENTATION

1. 52 bloomberg markets Month 2012

2. June 2012
bloomberg markets
53
The Canadians claim four of the top 10 spots in our second
annual list, as Singapore’s OCBC is again No. 1.
By Doug Alexander and Sean B. Pasternak
Photograph by Dan Winters

3. 54 bloomberg markets June 2012
munshiahmed/bloomberg
anks from Citigroup
Inc. in the U.S. to BNP
Paribas SA in France
are racing to shed as-
sets and raise money
ahead of new global
capital rules that start
taking effect in 2015.
For Canadian lenders,
these moves have created the opportu-
nity to go on a shopping spree.
Canada’ssixlargestbankshavespent
$37.8 billion since 2008 on about 100
acquisitions at home and abroad. “We
and our Canadian competitors are only
able to do that because we have some
flexibility as a result of our strength,”
says Gerald McCaughey, chief execu-
tive officer of Canadian Imperial Bank
ofCommerce,whichboughtJPMorgan
Chase & Co.’s minority stake in asset
management firm American Century
Investments last year. “Over the longer
term,thisshouldactuallyhelptomain-
tainthestrengthoftheCanadianbank-
ing system and its competitiveness.”
CIBC was No. 3 in Bloomberg Mar-
kets’ second annual ranking of the
world’s strongest banks, fol-
lowedbythreeofitsCanadian
rivals: Toronto-­Dominion
Bank(No.4),NationalBankof
Canada (No. 5) and Royal
Bank of Canada (No. 6), the
country’s largest lender.
Bank of Nova Scotia ranked
18th, and Bank of Montreal
was 22nd.
Singapore’s Oversea-Chi-
nese Banking Corp. retained
the title of the world’s stron-
gestbankforthesecondyear,
followed by BOC Hong Kong
Holdings Ltd. Two other Sin-
gaporean lenders—United
Overseas Bank Ltd. (No. 7)
andDBSGroupHoldingsLtd.
(No. 8)—were also among the
strongest.
“Singapore’s economy has
performed quite stably and
quite well, and for the Sin-
gaporean banks, we have
real economic activities to finance,”
Oversea-Chinese Banking CEO Sam-
uel Tsien says. He credits the bank’s
strength partly to its risk management
practices.
No other country dominated the list
as did Canada: The nation of 34.7 mil-
lion people has only eight publicly
traded banks, two of which are regional
lenders.OnlythreeU.S.banks—JPMor-
gan Chase (No. 13), PNC Financial Ser-
vices Group Inc. (No. 17) and BB&T
Corp. (No. 20)—made the top 20. Four
European banks were included: two
from Sweden and one each from the
U.K. and Switzerland.
For the ranking, we considered only
banks with at least $100 billion in as-
sets. We weighed and combined five
criteria, comparing Tier 1 capital with
risk-weighted assets, for example, and
nonperformingassetswithtotalassets.
(See “How We Crunched the Num-
bers,” opposite.) Tier 1 capital includes
a bank’s cash reserves, outstanding
commonstockandsomeclassesofpre-
ferredstock,allofwhichcombinetoact
as a buffer against losses. Banks that
posted an annual loss for last year or
that failed government stress tests
weren’t eligible for consideration.
Canadian banks invoke their strong
capital levels, the country’s conserva-
tive lending culture and strict regula-
toryoversightunderasinglesupervisor
as reasons for their showing. The su-
pervisor requires Canadian banks to
hold ahigher levelof capitalthandoin-
ternational standards.
Major banks around the world follow
the rules of the Basel Committee on
Banking Supervision—an arm of the
Bank for International Settlements,
based in Basel, Switzerland, that draws
banking regulators from 27 nations to
set standards for lenders. The commit-
tee issued its first internationally ac-
cepted capital guidelines in 1988. Those
rules, known as ­Basel I, focused on
credit risk: the possibility that borrow-
ers might not pay back their bank loans.
The committee required banks to hold
total capital, at least half of it in Tier 1
capital, equal to at least 8 percent of
their risk-weighted assets.
Canada’s regulator, the Office of the
Superintendent of Finan-
cial Institutions Canada, has
gone beyond those levels in
its requirements, a stance
that has shielded lend-
ers from some of the finan-
cial follies that undermined
other global banks, espe-
cially in 2008. As far back
as January 1999, OSFI sent
a letter to Canadian banks
telling them to set aside at
least 10 percent of total cap-
ital as a cushion for losses.
“I do not think it was pop-
ular at the time,” says Julie
Dickson, OSFI’s superinten-
dent. “That’s
where having a
supervisor with
a pretty clear
mandate al-
lows you to take
those unpopu-
lar decisions.”
The world’s strongest banks
Singapore’s
healthy economy
helped propel
OCBC to the
No. 1 spot for the
second year,
CEO Samuel
Tsien says.

4. June 2012 bloomberg markets 55
1 Oversea-Chinese Banking (Singapore) 14.2 14.4 0.4 135.4 81.7 44.0
2 BOC Hong Kong Holdings (Hong Kong) 14.9 12.5 0.0 348.1 80.7 39.0
3 Canadian Imperial Bank of Commerce (Canada) 16.4 14.7 0.5 89.3 90.5 59.7
4 Toronto-Dominion Bank (Canada) 18.0 13.0 0.3 105.3 88.6 60.6
5 National Bank of Canada (Canada) 19.8 13.6 0.3 135.1 71.9 63.6
6 Royal Bank of Canada (Canada) 20.8 13.3 0.3 82.0 81.9 60.0
7 United Overseas Bank (Singapore) 21.8 13.5 1.1 106.7 83.6 43.6
8 DBS Group Holdings (Singapore) 23.3 12.9 0.9 107.0 79.8 41.2
9 Hang Seng Bank (Hong Kong) 23.8 11.6 0.2 94.3 93.4 57.0
10 Svenska Handelsbanken (Sweden) 24.7 18.4 0.3 60.7 34.3 47.1
11 Banco Santander Brasil (Brazil) 26.4 17.5 3.3 85.5 77.5 40.5
12 Standard Chartered (U.K.) 26.8 13.7 0.7 63.4 76.9 56.2
13 JPMorgan Chase (U.S.) 27.0 12.3 0.5 250.2 62.5 61.1
China Construction Bank (China) 27.0 11.0 0.6 241.4 88.8 36.5
Banco Bradesco (Brazil) 27.0 12.4 0.9 278.6 76.9 57.0
16 Credit Suisse Group (Switzerland) 29.5 15.2 0.2 53.0 43.6 85.3
17 PNC Financial Services Group (U.S.) 29.6 12.6 1.5 104.6 83.7 62.4
18 Bank of Nova Scotia (Canada) 29.9 12.2 0.7 68.9 85.5 55.3
19 Skandinaviska Enskilda Banken (Sweden) 30.7 15.9 0.8 59.8 51.4 60.7
20 BB&T (U.S.) 31.7 12.5 1.4 92.1 83.1 66.0
How We Crunched
the Numbers
To identify the world’s stron-
gest banks, we used the
Bloomberg Professional ser-
vice’s Equity Screening (EQS)
function to obtain a list of the
78 banks with total assets of
$100 billion or more as of
mid-March. The banks’ Tier 1
capital ratio, which is the ratio
of its core equity capital to
its risk-weighted assets,
accounted for 40 percent of
each score. The ratio of nonper-
forming assets to total assets
got a weighting of 20 percent,
as did the ratio of reserves for
loan losses to nonperforming
assets. The ratio of deposits to
funding accounted for 15 per-
cent of the final score. And the
efficiency ratio, which com-
pares costs with revenues,
received a 5 percent weighting.
Banks were ranked on each
criterion, the scores were added
together and the total deter-
mined their position in the list.
Financial firms that reported a
loss for their 2011 net income or
failed the Federal Reserve’s
most recent stress test were
excluded. Banks that hadn’t
reported 2011 year-end data by
March 31 weren’t included. All
data are for the 2011 fiscal year,
which in most cases ended on
Dec. 31.
Bloomberg Rankings
Rankings@Bloomberg.Net
overallscore*
Tier1capital
torisk-weightedassets
Nonperformingassets
tototalassetsLoan-lossreserves
tononperformingassets
DepositstofundingEfficiency
(coststorevenue)
The World’s
Strongest Banks
institutions from canada, singapore and the U.S. dominate
our list, followed by hong kong and sweden.
Bigger number
means higher ranking
Smaller number
means higher ranking
*Banks’ ranks on each of the five criteria were weighted and summed to determine the results. All other figures are ratios. Data are for each bank’s 2011 fiscal year. Includes banks
with at least $100 billion in total assets. Source: Bloomberg

5. 56 bloomberg markets June 2012
finno’hara
will be required to have minimum
Tier 1 capital of 6 percent starting
in 2015.
While having strong capital is
crucial, Canadian banks will pros-
per only if they can expand their
reach, Waugh says. “Because if you
don’t grow, you’re going to eventu-
allyhavesomeissuesoncapitaland
strength,” he says. Scotiabank has
units in about 50 countries and is
looking in particular at Latin
America and Asia, says Waugh,
who’s also vice chairman of the
Washington-based Institute of In-
ternational Finance.
Canadian banks spent $14.4 bil-
lion last year on acquisitions, many
of them aimed at growth in the
U.S. “Having conservative capital
standards in Canada
going into the down-
turn clearly was a
competitive advan-
tage,” TD Bank CEO
Edmund Clark says.
He says Canada’s sec-
ond-biggestbankwas
ferocious at manag-
ing liquidity.
TDBankhasacceleratedaU.S.expan-
sion strategy that Clark began in 2004.
In 2008, the bank took over Commerce
Bancorp of Cherry Hill, New Jersey, in
a $7.1 billion transaction that helped
givetheCanadianlender1,284branches
in the U.S. today—more than the 1,150
it currently has in Canada. TD’s green
internal models, for instance. And in
2010, regulators rewrote the rules
again to address shortcomings that
arose out of the financial crisis. The
group will require banks to hold 7 per-
cent of their assets as core reserves,
or equity core Tier 1 capital, by 2019
when the latest rules—known as Basel
III—are fully implemented. Banks
The Canadian regulator also set
criteria on the quality of banks’ as-
sets, requiring them to hold 75 per-
cent of their capital in equity.
“When the crisis erupted, we real-
ized we had stuck to a fairly basic
rule, which was that the bulk of
Tier 1 capital had to be in ­equity,”
Dickson says. “That turned out to
be very, very important.”
SomeofCanada’slenderselected
to exceed OSFI’s requirements. In-
vestors criticized Bank of Nova
Scotia, CEO Richard Waugh says,
for holding too much cash. “So
many people in 1999 and 2001 said:
‘Scotia,you’vegotexcesscapitalbe-
cause you’re way above Basel, way
above OSFI. You should do stock
buybacks and extra dividends,’”
Waugh recalls in an interview at an
annual investor meeting in Saska-
toon, Saskatchewan. “We said, ‘It’s
notexcess,becauseitwasgetting18
percent return on capital, which
was a very good place, and our
shareholders would have had a dif-
ficult time reinvesting elsewhere.’”
Waugh credits the high returns to
profitsspreadequallyamongfourmain
businesses: global wealth management
anddomestic,internationalandwhole-
sale banking.
Since 1988, the BIS has further
tweakedglobalrules.The2004BaselII
accord set more guidelines on how to
address and quantify the risks of a
bank’s assets—allowing them to use
Acquirer Target Deal Value (Year completed)
Toronto-Dominion Bank Commerce Bancorp $7.1 billion (2008)
Toronto-Dominion Bank Chrysler Financial (from Cerberus Capital Management) $6.3 billion (2011)
Bank of Montreal Marshall & Ilsley $4.19 billion (2011)
Bank of Nova Scotia CI Financial (37 percent stake from Sun Life Financial) $2.31 billion (2008)
Royal Bank of Canada RBTT Financial Holdings $2.14 billion (2008)
Canadians on the Prowl
The country’s banks have leveraged their strength to make several multibillion-dollar acquisitions during the past five years.
All figures in or converted to U.S. dollars. Source: Bloomberg
Canadian banks’
strength gives
them flexibility,
CIBC’s Gerald
McCaughey
says.
The world’s strongest banks

6. finno’hara
58 bloomberg markets June 2012
following the U.S. mortgage–related fi-
nancial crisis of 2007, more than any
other Canadian bank. CIBC also was
one of the first to rebuild its balance
sheet, selling C$2.94 billion of stock
nine months before Lehman Broth-
ers Holdings Inc. collapsed and mar-
kets seized up. Still, writedowns at
Canadian banks were a fraction of the
$2.08 trilliontakenbyfinancialcompa-
nies worldwide.
There’s no reason for Canadian
banks to become smug, the country’s
banking regulator says. “Complacency
is a real danger for Canada,” OSFI’s
Dickson says. “The bar is always rising
in risk management, and if you become
complacent, you may say you’re doing
a good enough job and you don’t really
have to change anything.”
doug alexander covers canadian banks
and brokerages at bloomberg news in
toronto. dalexander3@bloomberg.net
sean b. pasternak covers banks
and insurers in toronto.
spasternak@bloomberg.net with
assistance from sanat vallikappen in
singapore and jim brunsden in brussels.
To write a letter to the editor, send an e-mail to
bloombergmag@bloomberg.net or type MAG <Go>.
April, it agreed to buy the 50 percent of
RBC Dexia Investor Services Ltd. it
didn’t already own from Banque Inter-
nationale a Luxembourg SA for about
C$1.1 billion ($1.1 billion) in cash.
As they flex their muscles with ac-
quisitions, Canadian banks may face
tougher times ahead. Consumer lend-
ing is slowing this year. RBC Capital
Markets predicts that Canadian bank
profits will rise 7 percent in 2012,
slightly more than half the 13 percent
ratein2011.Canadianbankstockshave
outperformed those from south of the
border. In the four years ended on
Dec. 31, the Standard & Poor’s/TSX
Composite Commercial Banks Indus-
try Index that tracks Canada’s eight
traded banks rose 4.8 percent com-
pared with a 56 percent decline for the
24-member KBW Bank Index, which
includes the biggest U.S. banks.
Canadian banks haven’t been com-
pletely immune to the woes faced
by their counterparts in the U.S. and
Europe in recent years. CIBC had
more than C$10 billion in writedowns
logo is now a common sight on the
streetsofNewYork,whereitaimstobe-
come the city’s third-largest lender by
number of branches within four years,
and in Boston, where its name adorns
the TD Garden, home to the Boston
CelticsbasketballteamandBostonBru-
ins hockey team.
“We were in there and said: ‘We have
a once-in-a-lifetime opportunity. Let’s
take advantage of it,’” Clark says. TD—
one of four banks globally to boast the
top Aaa long-term debt rating from
Moody’s Investors Service—added fur-
ther to its U.S. clout last year when it ac-
quired auto lender Chrysler Financial
Corp. from Cerberus Capital Manage-
ment LP.
Bank of Montreal, Canada’s fourth-
largest lender, also ramped up its pres-
ence in the U.S. by buying Marshall &
Ilsley Corp., a Milwaukee-based bank,
last year for $4.19 billion. Prior to that,
its main U.S. asset had been the small
Chicago-based Harris Bank franchise it
bought in 1984.
Royal Bank has also been active. In
TDBank’sEdmundClarksawaonce-in-a-lifetimeopportunitywhenthelenderacquiredCommerce Bancorp;itnowhasmorebranchesinthe U.S.thanin Canada.
The world’s strongest banks