The Competition Bureau's letter to the Toronto-Dominion Bank and Canada Trust

Commissioner of Competition

Competition
Bureau

Place du Portage I
50 Victoria Street
Gatineau, Québec
K1A 0C9

Facsimile: 819-953-5013
Telephone: 819-997-3301

January 28, 2000

Letter

Mr. A. Charles Baillie
Chairman and Chief Executive Officer
Toronto-Dominion Bank
Toronto-Dominion Tower
55 King Street West, 11th Floor
Toronto, Ontario
M5K 1A2

Mr. Edmund Clark
President and Chief Executive Officer
Canada Trust
Canada Trust Tower, BCE Place
161 Bay Street, 35th Floor
Toronto, Ontario
M5J 2T2

c.c  The Honourable Paul Martin, P.C., M.P.
Minister of Finance

Dear Messrs. Baillie and Clark:

This letter sets out the results of the competition analysis the Competition Bureau conducted on the proposed merger of the Toronto-Dominion Bank and Canada Trust.

The mandate of the Competition Bureau is to ensure that Canada has a competitive marketplace and that all Canadians enjoy the benefits of competition. This requires that the Bureau review proposed mergers to determine if they are likely to substantially lessen or prevent competition.

After a comprehensive review, the Bureau has concluded that, as proposed, the merger is likely to substantially lessen or prevent competition, and that this would lead to higher prices and lower levels of service and choice for branch banking consumers in three local markets: Kitchener-Waterloo-Cambridge-Elmira, Port Hope and Brantford-Paris. The Bureau has also concluded that the merger will substantially lessen or prevent competition in the general-purpose credit card networks market in Canada.

In response to the Bureau's concerns, Toronto-Dominion and Canada Trust have proposed to sell branches in the three identified markets. They have also proposed to either sell the Canada Trust MasterCard credit card portfolio, with the exception of Powerline accounts, or convert Toronto-Dominion's Visa credit card portfolio to MasterCard. It is the Bureau's view that these proposed remedies, once fully implemented, will address the anti‑competitive impact of the proposed merger. Appendix D contains Toronto-Dominion and Canada Trust's undertakings to the Bureau to divest these assets. The Bureau will not make public certain schedules of either undertaking because they contain confidential information.

The Bureau assessed the proposed merger in the traditional manner by gathering information and analyzing any possible anti‑competitive effects, such as undue concentration, that would indicate a lessening of competition should the merger proceed. The details of the process are contained in the The Merger Enforcement Guidelines as Applied to a Bank Merger, which the Competition Bureau issued in July 1998.

The Bureau assessed the likely competitive impact of the merger using a two-year timeframe and examined the impact for all banking services. The results of the examination indicated that further, detailed analysis was required for only two major lines of business: branch banking services to individuals and businesses, and credit cards.

While the Bureau anticipates a number of significant changes to the banking industry in the next decade due to innovation and technology, these are unlikely to mitigate the impact of the proposed merger in the affected markets within the next two years.

The Bureau has no regulatory authority to allow or disallow mergers between financial institutions. Its role is to review proposed mergers for their impact on competition and share the results of this analysis with the parties concerned. Under the Bank Act and the Trust and Loan Companies Act, it is the Minister of Finance who has the ultimate authority to approve such mergers. Consequently, the Bureau will send to the Minister of Finance a copy of this letter, together with the undertakings.

On the basis of the Bureau's analysis, and the negotiated divestiture package, my advice to the Minister of Finance on the competition aspects of this merger is that he either withhold approval of the merger until all divestitures have been completed or, alternatively, that he approve the merger on the condition that the undertakings to the Bureau be fully implemented to address all the competition issues.

On this page

Summary of conclusions

As a result of the Bureau's review and on the basis of the materials submitted, the advice of experts and the information third parties provided, the merger as currently structured will have the following results.

A. Branch banking

For individuals, branch banking services consist of personal transaction accounts, personal loans and lines of credit, and residential mortgages.

For businesses, in particular small and medium-sized businesses, these services consist of business transaction accounts and related services and operating loans.

The proposed merger:

  • will substantially lessen or prevent competition in 3 of 74 local markets in which Toronto-Dominion and Canada Trust compete for branch banking services to individuals. However, the proposed branch divestitures, once fully implemented, will address the competition concerns;
  • will not substantially lessen or prevent competition in the remaining 71 local markets for branch banking services to individuals; and
  • will not substantially lessen or prevent competition in any markets for branch banking for businesses.

B. Credit cards

The proposed merger:

  • will substantially lessen or prevent competition in the general-purpose credit card networks market. However, the proposed divestiture of the Canada Trust MasterCard portfolio, with the exception of Powerline accounts, or the conversion of Toronto-Dominion's credit card portfolio from Visa to MasterCard, once fully implemented, will address the competition concerns.

The proposed merger

On August 3, 1999, Toronto-Dominion announced that it had entered into a binding agreement with British American Tobacco PLC (BAT) under which Toronto-Dominion would make a takeover bid for 100 percent of the shares of CT Financial Services, the parent company of Canada Trust. BAT owns 42 percent of Imasco, which, in turn, owns 98.2 percent of CT Financial Services. Toronto-Dominion agreed to pay $67 per share, for a total cash purchase of $8 billion.

This transaction would combine Canada's fifth largest bank based on the value of Canadian assets with the largest remaining Canadian trust company. The rationale for the merger is that it is necessary for the two companies to combine and become larger in order to be a more efficient and effective supplier of retail financial services. The two companies also asserted that the proposed merger would result in significant cost savings, and, by introducing the Canada Trust service model across the Toronto-Dominion branch network, force other large financial institutions to follow suit and become more competitive.

Scope of the bureau's review

The Bureau's mandate under the Competition Act is confined to assessing whether or not proposed mergers are likely to substantially lessen or prevent competition. This will be the case when a merger is likely to result in higher prices, less choice or reduced service. Any merger that is likely to have such an impact on competition may be prohibited under the Competition Act, unless the merger creates efficiencies that would be greater than, and would offset, the negative impact on competition.

In assessing competitive criteria, the Bureau relied on the conclusions it reached during its reviews of the proposed bank mergers in 1998. There have been no significant developments since then and no evidence presented that suggests those conclusions would not be applicable to this transaction.

The Bureau also relied on current information from Toronto-Dominion and Canada Trust, market contacts, and advice from experts in the credit card and retail banking sectors. In addition, Bureau staff met with representatives of Toronto-Dominion and Canada Trust at every stage of the process to ensure that the Bureau fully understood the parties' submissions, to obtain information, to explain the results of the review, and to discuss proposed remedies.

Analytical approach

The Bureau's analysis covered an extensive range of products and geographic areas in which financial institutions compete. The Merger Enforcement Guidelines as Applied to a Bank Merger provided the framework for the analysis.

As explained in the Guidelines, there are four major steps in determining whether or not a particular transaction would substantially lessen or prevent competition.

  • Relevant markets are defined to identify which products, where and with whom the banks compete. A relevant market consists of a group of products that are close substitutes. Each group represents a separate product market with its own geographic market dimensions.
  • Market shares and concentration levels are calculated for each relevant market. A more detailed review is generally required if a) the share held by the banks is 35 percent or greater, or b) the combined share held by the four largest competitors is 65 percent or greater (and the share held by the merging banks exceeds 10 percent).
  • A variety of competitive criteria are evaluated for each relevant market under detailed review. The goal is to determine whether or not the merger is likely to result in a substantial lessening or prevention of competition. Criteria examined typically include the extent of foreign competition the banks face, the barriers that would be encountered should other companies wish to enter a particular market, the impact of technology, whether or not the merger would remove a vigorous and effective competitor, the effectiveness of the remaining competition, and any other factor relevant to competition.
  • Claimed efficiencies are considered if it is concluded that the merger results in a substantial lessening or prevention of competition. The Competition Act provides that a merger may proceed provided a) it is likely to result in efficiencies that would not otherwise be realized, and b) such efficiencies would be greater than, and would offset, the anti‑competitive impact.

The Bureau's analytical approach presumes a merger will not harm competition when markets are unconcentrated, entry is easy and effective competition remains. Therefore, the analysis may end if at any stage the evidence demonstrates that the relevant market will not be subject to competition concerns.

Competition analysis

This merger review examined three major lines of business in which the two financial institutions are engaged: branch banking services to individuals and businesses, credit cards and securities. As the Bureau soon determined that there is no significant overlap in the securities market, the detailed analysis focussed on the impact the merger would have on branch banking and credit cards.

A. Branch banking

This section examines the markets for branch banking services provided to individuals and businesses in Canada.

Product markets

Personal financial services

Within this category, the Bureau defined the following product markets:

  • Personal Long-term Investments
  • Personal Short-term Savings
  • Student Loans
  • Personal Transaction Accounts
  • Residential Mortgages
  • Personal Loans and Lines of Credit

Personal long-term investments include most mutual funds, stocks and bonds. Personal short-term savings include guaranteed investment certificates, money market mutual funds, Canada and provincial savings bonds, and treasury bills.

The Bureau concluded that no detailed review was required of personal long-term investments, personal short-term savings and student loans. In these product markets, either the remaining competition was effective or the applicable thresholds were not crossed.

Personal transaction accounts

Transaction accounts are the core of the personal banking relationship. They enable an account holder to make deposits and withdrawals through savings or chequing accounts and to receive reports on those activities. These transactions may take place either at the local branch or through some other means such as an automated banking machine, debit card, telephone, personal computer or the Internet.

Residential mortgages

A residential mortgage is the principal form of long-term personal debt for many Canadians. Most mortgages are used to buy a home. For those with significant equity, it is possible to use a line of credit to fund a home purchase. However, this option is not open to home owners with lower levels of equity. Consequently, the Bureau has decided that residential mortgages are sufficiently distinct from lines of credit that they constitute a relevant product market.

Personal loans and lines of credit

Personal loans and lines of credit are another distinct type of consumer credit for the purposes of our analysis. Credit cards, with the exception of low-rate credit cards, carry interest rates that are more than twice the interest rates of personal loans and lines of credit and, therefore, are not considered good substitutes. Similarly, loans from consumer finance companies are priced so much higher than loans from deposit-taking institutions that they have been excluded from this market.

Business financial services

Within this category, the Bureau defined the following product markets:

  • Term Loans
  • Business Transaction Accounts and Related Services
  • Operating Loans

Term loans, including non-residential mortgages, are generally mid- to long-term in duration and are typically secured by collateral to purchase equipment, buildings and real estate. Leased equipment is also included in this category. The Bureau concluded that no detailed review was required for term loans either because the remaining competition was effective and provided businesses with adequate competitive alternatives, or the applicable thresholds were not crossed.

Business transaction accounts and related services

Transaction accounts are the core of the business banking relationship. They allow firms to pay bills and collect receivables. Other products, such as night deposit and cash and coin services, are generally linked to transaction accounts.

Operating loans

Operating loans are intended for the short-term operating needs of businesses, such as financing receivables and inventory. Banks will generally not give an operating loan unless a business has its transaction account at the same bank. This gives the lending banks the ability to monitor a customer's business on a continuing basis.

Geographic markets

The geographic market for branch banking is local. The Bureau identified 112 local markets in urban areas with populations of 10,000 to 100,000, based on the integrated economic areas identified by Statistics Canada as Census Agglomerations. It also identified 25 urban areas of more than 100,000 people, which Statistics Canada has grouped into individual Census Metropolitan Areas. Of the 137 local urban markets across Canada, Toronto-Dominion and Canada Trust operations overlap in 63 markets.

In rural areas, the Bureau examined the competitive environment of all Toronto-Dominion and Canada Trust branches within 20 kilometres of each other. Using this criteria, Toronto-Dominion and Canada Trust operations overlap in 11 rural markets.

In all, Toronto-Dominion and Canada Trust compete in 74 local markets.

Market share and concentration levels

To calculate market share and concentration levels for branch banking products, the Bureau, in 1998, supplemented the Canadian Bankers Association market share database with information from many other financial institutions and the Canadian Payments Association. As a result, the database includes nearly all deposit-taking institutions. In 1998, Bureau staff also modified the database to accommodate products for which non-deposit-taking institutions are significant competitors, such as insurance companies dealing in residential mortgages. In addition, the Bureau updated the database with new information from Toronto-Dominion and Canada Trust.

This database is the best available in Canada at this time.

Competitive criteria

Barriers to entry

To assess the merger's competitive effect, the Bureau must consider the level of barriers to entry, and whether or not entry or expansion on a scale sufficient to offset the substantial lessening or prevention of competition is likely to occur within two years. Even when a merger exceeds the Bureau's thresholds, low barriers to entry (i.e. it is relatively easy to become established in a particular market) would increase the likelihood of new entrants and constrain the merged companies. As a result, the merged entity would be forced to behave in a manner consistent with a competitive market.

The Bureau has concluded that the barriers for new entrants into branch banking are high. The extensive branch networks of the major Canadian financial institutions represent a significant existing investment that is difficult for new entrants to replicate. Moreover, it takes an extended period of time (usually three to seven years) for a branch to break even. It should also be noted that the major banks have an advantage over new entrants because they have already secured the best locations in most markets.

In all the interviews the Bureau conducted in 1998, no one said they expected significant new entry into branch banking. Consequently, the Bureau concluded that new branch bank entry, other than by acquisition, is highly unlikely.

In addition to the costs of establishing a branch banking network, new entrants face a number of other barriers. There is some evidence that economies of scale and scope make entry more difficult for smaller firms. On transaction accounts, the evidence also indicates that customers are reluctant to switch their primary financial institution, which handles day-to-day banking, payroll deposits and automatic bill payments. The major financial institutions have also developed strong brand names through decades of advertising, and strong local branch presence throughout Canada.

An indication of the strength of customer loyalty is demonstrated by a 1998 report prepared for the Task Force on the Future of the Financial Services Sector. The report notes that no institution has gained more than one percent market share in any year, except by acquisition.

The Bureau recognizes that the supply of residential mortgage loans is becoming less branch-dependent due to the advent of alternative mortgage sources. However, the Bureau notes that new entrants for this product are constrained by consumer reluctance to obtain mortgages through independent mortgage brokers or the Internet, or by telephone or mail. This reluctance to use non-traditional mortgage outlets is most prevalent in rural and remote communities.

While existing competitors are not confronted by the same levels of barriers to entry new entrants face, their expansion is impeded by the high costs of gaining new customers. This is due to the cost to consumers of switching and the expectation that new branches may not be profitable for up to seven years.

Changes in technology and innovation

The Bureau looked at the impact technology and innovation might have on lowering barriers to entry in the banking sector and in expanding the scope of the geographic market. While it has been noted that Canadians are beginning to use technology for their banking, all evidence indicates that branches remain critical to the overall success of a bank. Toronto-Dominion and Canada Trust's proposed plan to extend the Canada Trust service model, with longer branch hours and superior counter service, to Toronto-Dominion branches would seem to support the Bureau's findings.

Foreign competition

The Bureau defines foreign competition as foreign institutions that offer Canadian consumers financial services from outside Canada. Due to regulatory constraints, competition is minimal for individual banking products offered by foreign-controlled deposit-taking institutions operating in Canada.

Removal of an effective competitor

The proposed merger would eliminate the last major trust company in Canada — a company that has an acknowledged reputation for innovation in the financial services sector. It is also noted that Toronto-Dominion would adopt many of Canada Trust's service model practices and that Canada Trust's current President and Chief Executive Officer, Mr. Edmund Clark, would head Toronto-Dominion's retail operations. The Bureau is of the view that expanding the Canada Trust service model to one of the big five banks would be pro-competitive and could encourage other institutions to follow suit. However, the loss of such a major competitor in the trust company sector is cause for concern in light of the already high levels of concentration that exist in most local markets.

Effective competition remaining

Assessing the effectiveness of the remaining competition that would remain after a merger is an important consideration in determining whether or not the merging institution would be constrained in raising prices, or reducing the quality or level of service.

Canada Trust is a regional player with operations focussed in Southern Ontario, British Columbia and Alberta. Its presence in the rest of the country is limited to one or two branches in each of the other provinces. In nearly all of the markets the Bureau examined, the competition offered by the remaining banks, credit unions and other financial institutions is sufficient to address competition concerns of the Bureau. Exceptions to this view are the previously identified markets in Kitchener-Waterloo-Cambridge-Elmira, Port Hope and Brantford-Paris.

Interdependent behaviour

The Bureau has examined the proposed transaction to determine the potential for a substantial lessening or prevention of competition through the exercise of interdependent behaviour at both local and national levels. This lessening can result from either explicit agreements or from implicit recognition among firms that, in the new post-merger environment, reduced competitive vigour would be more profitable for all.

A small number of sellers in any one market increases the risk of interdependent behaviour, and the Bureau has determined that the proposed merger increases concentration in an already concentrated industry. A high level of concentration in the relevant market is a necessary, but not a sufficient, condition for determining whether or not interdependent behaviour is likely to substantially lessen or prevent competition.

Other factors that facilitate interdependent behaviour are high barriers to entry, the homogeneity of products, the predictability of demand and costs, the stability of market shares, the quality of information about pricing and customers, and the degree of industry cooperation (e.g. in associations, joint ventures, alliances, networks and loan syndicates). To a large degree, these factors appear to be present in this industry.

Given that Canada Trust is a regional player with a more limited product offering than the major Schedule I banks and the fact that Toronto-Dominion would be adopting Canada Trust's unique service model, it is less likely that the merger will lead to interdependent behaviour. However, in view of the fact that Canada Trust has been characterized as an innovator in the industry, the loss of this firm raises the concern that the proposed merger could increase the risk for reduced competitive vigour among the remaining major banks.

Identification of problem markets

To identify those markets in which the merger will substantially lessen or prevent competition, the Bureau employed the principles set out in Appendix B.

Retail banking

Applying these principles to services provided to individuals, the Bureau has concluded that the proposed merger:

  • will substantially lessen or prevent competition in two local markets: Kitchener-Waterloo-Cambridge-Elmira and Port Hope;
  • may substantially lessen or prevent competition in 14 local markets. Following additional review, the Bureau has determined that a remedy was required in only one market — Brantford-Paris — where the proposed merger will otherwise substantially lessen competition; and
  • will not substantially lessen or prevent competition in 58 local markets.
Proposed remedies

In response to these findings, Toronto-Dominion and Canada Trust have proposed to sell 11 branches in Kitchener-Waterloo-Cambridge-Elmira, as well as individual branches in Port Hope and Brantford-Paris. The Bureau is of the view that the sale of these branches to a viable long-term competitor will address the substantial lessening or prevention of competition that would otherwise result in these markets.

Appendix C provides a list of those markets where remedies are required as well as those where the Bureau has concluded that competition will not be substantially lessened or prevented.

Business banking

Canada Trust is recognized as currently being a minor supplier of business credit in the geographic markets in which it competes. On the basis of its analysis, the Bureau concurs. In applying the above principles to identify problem markets, only one market — Fergus-Elora — raised potential competition concerns. On further examination, the Bureau concluded that competition was unlikely to be substantially lessened or prevented in this market. As a result, Toronto-Dominion's acquisition of Canada Trust will not substantially lessen or prevent competition in the supply of operating loans or other financial services to businesses in any market.

Conclusions

For individuals, branch banking services consist of personal transaction accounts, personal loans and lines of credit, and residential mortgages.

For businesses, in particular small and medium-sized businesses, these services consist of business transaction accounts and related services and operating loans.

The proposed merger:

  • will substantially lessen or prevent competition in 3 of 74 local markets in which Toronto-Dominion and Canada Trust compete for branch banking services to individuals. However, the proposed branch divestitures, once fully implemented, will address the competition concerns;
  • will not substantially lessen or prevent competition in the remaining 71 local markets for branch banking services to individuals; and
  • will not substantially lessen or prevent competition in any markets for branch banking for businesses.

B. Credit cards

Product markets

Within this category, the Bureau defined the following product markets.

  • General-purpose Credit Card Issuing to Individuals
  • General-purpose Credit Card Issuing to Businesses
  • General-purpose Credit Card Networks
  • Visa Merchant Acquiring
  • MasterCard Merchant Acquiring
  • Primary Merchant Acquiring
General-purpose credit card issuing to individuals and businesses

General-purpose credit cards include cards such as Visa, MasterCard, American Express and Diners Club/enRoute. The Bureau determined that the merged company would have less than 35 percent market share for general-purpose credit card issuing to individuals and businesses in Canada. In addition, the merged company would face continued competition from incumbents such as the Royal Bank of Canada, Canadian Imperial Bank of Commerce, Bank of Montreal, Bank of Nova Scotia, National Bank and American Express, as well as recent entrants such as MBNA and Capital One.

In light of these competitive factors, the Bureau has concluded that the merged entity would be unable to exercise market power in Canada. Therefore, the Bureau has determined that the merger will not substantially lessen or prevent competition for the issuing of general-purpose credit cards to individuals or businesses, provided that the competition issues in the networks market have been remedied as proposed.

Visa and MasterCard merchant acquiring
Primary merchant acquiring

In order to accept credit cards as a method of payment, merchants must contract with an acquirer to process and guarantee payment. Under the existing rules and policies of the Visa and MasterCard networks, members may not acquire the transactions of a competing card. By virtue of the exclusive membership of Toronto-Dominion and Canada Trust in the Visa and MasterCard networks, respectively, there is no direct overlap in either the Visa merchant acquiring or the MasterCard merchant acquiring markets.

Primary merchant acquiring is defined as a package of services sold to merchants that includes both the provision of terminal services as well as Visa or MasterCard acquiring services. While Toronto-Dominion is a significant participant in this market, which includes data transmission and software to route transactions to the appropriate network, Canada Trust is not.

Therefore, the Bureau has concluded that the proposed merger will not substantially lessen or prevent competition in the acquiring markets.

General-purpose credit card networks

A general-purpose credit card network enables cardholders to have their cards widely accepted. Networks compete with each other to be the preferred method of payment for goods and services by promoting brand awareness and continually improving their systems.

The geographic market for general-purpose credit card networks is national.

Market share and concentration levels

Toronto-Dominion (as a member of the Visa network) and Canada Trust (with MasterCard) are active issuers and acquirers for the two major competing general-purpose credit card networks in Canada. Since Toronto-Dominion and Canada Trust are currently members of different networks, the merged entity would have to choose membership in either Visa or MasterCard.

The Bureau examined whether the conversion of Canada Trust's MasterCard portfolio to Visa would have a negative impact on the MasterCard network, such that competition among the networks would be substantially lessened or prevented.

Visa is the largest network in Canada in terms of total dollar volume of transactions — that is, total dollars spent by customers with general-purpose credit and charge cards. Visa, the market leader, is followed by MasterCard, American Express and Diners Club/enRoute.

Canada Trust is a significant member of MasterCard. Consequently, Canada Trust's sizeable portfolio is important to maintaining a competitively viable and effective MasterCard network in Canada. Therefore, the loss of this MasterCard business would likely have the effect of weakening the MasterCard brand within Canada to the point that its viability would be in jeopardy.

It is the Bureau's view that this is likely to substantially lessen or prevent competition between the two major networks by reducing brand awareness and limiting the ability of MasterCard to effectively respond to ongoing competitive pressures.

Proposed remedy

To address the competition concerns in the network market, Toronto-Dominion and Canada Trust have proposed that:

  • the Canada Trust MasterCard portfolio, with the exception of Powerline accounts, be sold to a third party who is a new or existing member of MasterCard; or
  • Toronto-Dominion will convert its Visa credit card portfolio to MasterCard and therefore would not sell the Canada Trust portfolio.

The objective of this remedy is to maintain competition in Canada among all credit card networks, including Visa and MasterCard. The proposed remedy is acceptable to the Bureau since under either option the pre-merger market position of MasterCard would, at a minimum, be maintained.

Conclusion

The proposed merger:

  • will substantially lessen or prevent competition in the general-purpose credit card networks market. However, the proposed divestiture of the Canada Trust MasterCard portfolio, with the exception of Powerline accounts, or the conversion of Toronto-Dominion's credit card portfolio from Visa to MasterCard, once fully implemented, will address the competition concerns.

Summary

As the foregoing indicates, the proposed merger raises serious competition issues in only a small number of markets. However, those concerns will be addressed if Toronto-Dominion and Canada Trust implement the undertakings provided to the Bureau.

As required under the Bank Act and the Trust and Loan Companies Act, the Minister of Finance will decide whether the proposed merger should proceed, taking into account the undertakings provided to the Bureau.

On the basis of the Bureau's analysis, and the negotiated divestiture package, my advice to the Minister of Finance on the competition aspects of this merger is that he either withhold approval of the merger until all divestitures have been completed or, alternatively, that he approve the merger on the condition that the undertakings to the Bureau be fully implemented to address all the competition issues.

Yours sincerely,

Konrad von Finckenstein, Q.C.

Appendix B

To ensure that competition concerns in each local market in which the Toronto-Dominion and Canada Trust compete are accurately identified, the Competition Bureau used the following approach.

Personal and business transaction accounts in each local market are the core of most banking relationships for consumers and businesses. If the combined market share of Toronto-Dominion and Canada Trust:

  • of either the personal or business transaction accounts is 45 percent or more, the local geographic market falls in the category "Will result in a substantial lessening of competition."
  • of either the personal or business transaction accounts is between 35 and 45 percent, or any of the following product categories — personal loans and lines of credit, residential mortgages, small or medium-sized business operating loans — is 35 percent or greater, the local geographic market falls into the category "May result in a substantial lessening of competition."
  • of either the personal or business transaction accounts, and any of the following product categories -- personal loans and lines of credit, residential mortgages, small or medium-sized business operating loans -- is below 35 percent, the local geographic market falls into the category "Will not result in a substantial lessening of competition."

These rules have been adjusted to discount very small changes in market share.

The detailed formula applied to each local market is set out below.

Will result in a substantial lessening of competition

Local geographic markets fall into this category if:

  • the combined market share of the merging parties in:
    • either personal or business transaction accounts is 45 percent or more; and
    • the market share being acquired as a result of the merger is 5 percent or more.

May result in a substantial lessening of competition

Local geographic markets fall into this category if:

  • the combined market share of the merging parties in:
    • either personal or business transaction accounts is 45 percent or more; and
    • the market share being acquired as a result of the merger is less than 5 percent.

or

  • the combined market share of the merging parties in:
    • either personal or business transaction accounts is between 35 and 45 percent; and
    • the market share being acquired as a result of the merger is 5 percent or more.

or

  • the combined market share of the merging parties in:
    • any one of the following: personal loans and lines of credit, residential mortgages, small and medium-sized business operating loans are 35 percent or greater; and
    • the market share being acquired as a result of the merger is 5 percent or more.

Will not result in a substantial lessening of competition

Local geographic markets fall into this category if:

  • the combined market share of the parties is below 35 percent in any product market.

or

  • the combined market share of the merging parties in:
    • either personal or business transaction accounts is between 35 and 45 percent; and
    • the market share being acquired as a result of the merger is less than 5 percent.

or

  • the combined market share of the merging parties in:
    • any of the following: personal loans and lines of credit, residential mortgages, small and medium-sized business operating loans are 35 percent or greater; and
    • the market share being acquired as a result of the merger is less than 5 percent.

Appendix C

The urban and rural markets the Bureau examined during its review of the proposed merger between Toronto-Dominion and Canada Trust are set out in the following table.

The urban and rural markets
Province Will Not Result in a Substantial Lessening or Prevention of Competition

less than 35%

58 Geographic Markets
May Result in a Substantial Lessening or Prevention of Competition

between 35% and 45%

14 Geographic Markets
Will Result in a Substantial Lessening or Prevention of Competition

greater than 45%

2 Geographic Markets
Post-
Remedy

"D" indicates divestitures that have to take place pursuant to the undertakings given.

NCI - No competition issue
Upon further examination, no competition issues remained.

Nfld. St. John's      
P.E.I. Charlottetown      
N.S. Bridgewater      
N.S. Cape Breton      
N.S. Halifax      
N.B. Fredericton      
N.B. Moncton      
N.B. Saint John      
Que. Montréal      
Ont. Amherstburg      
Ont. Barrie      
Ont. Belleville      
Ont.   Brantford   D
Ont. Brockville      
Ont. Chatham      
Ont.   Collingwood   NCI
Ont. Cornwall      
Ont.   Dunnville   NCI
Ont.   Fergus   NCI
Ont.   Guelph   NCI
Ont.   Hamilton   NCI
Ont. Hanover      
Ont.   Ingersoll   NCI
Ont. Kerns      
Ont. Kingston      
Ont.   Kirkland Lake   NCI
Ont.     Kitchener D
Ont. Leamington      
Ont.   London   NCI
Ont.   North Bay   NCI
Ont.   Norwich   NCI
Ont. Orillia      
Ont.   Oshawa   NCI
Ont. Ottawa      
Ont. Owen Sound      
Ont. Parksville      
Ont. Peterborough      
Ont.     Port Hope D
Ont. Sarnia      
Ont. Sault Ste. Marie      
Ont.   Simcoe   NCI
Ont. St. Catharines      
Ont. Stratford      
Ont. Sudbury      
Ont. Thunder Bay      
Ont. Tillsonburg      
Ont. Timmins      
Ont. Toronto      
Ont.   Wilmot   NCI
Ont. Windsor      
Ont. Woodstock      
Man. Brandon      
Man. Winnipeg      
Sask. Moose Jaw      
Sask. Regina      
Sask. Saskatoon      
Alta. Calgary      
Alta. Edmonton      
Alta. Lethbridge      
Alta. Medicine Hat      
Alta. Red Deer      
B.C. Abbotsford      
B.C. Campbell River      
B.C. Chilliwack      
B.C. Courtenay      
B.C. Duncan      
B.C. Kamloops      
B.C. Kelowna      
B.C. Nanaimo      
B.C. Penticton      
B.C. Prince George      
B.C. Vancouver      
B.C. Vernon      
B.C. Victoria      

Appendix D

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