TD / Canada Trust - Backgrounder Fact Sheet - The Competition Bureau and the Proposed Merger of Toronto-Dominion Bank and Canada Trust

Backgrounder

February 11 , 2003

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The Competition Bureau

The mandate of the Competition Bureau is to ensure that Canada has a competitive marketplace and that all Canadians enjoy the benefits of competitive prices, product choice and quality service.

This requires that the Bureau review proposed mergers to determine whether the merged company will substantially lessen or prevent competition by raising prices, limiting choice and decreasing service. Should the Bureau reach a conclusion to this effect, and after taking into consideration any claimed efficiencies, it will generally require that the proposal be restructured or abandoned.

Mergers: Financial Institutions

Unlike most other mergers, mergers between federal financial institutions require the ultimate approval of the Minister of Finance. This requirement is set out in the Bank Act, the Trust and Loan Companies Act and Section 94 of the Competition Act.Consequently, the letter containing the Bureau's assessment of any proposed bank merger addressed to the financial institutions proposing to merge is also copied to the Minister of Finance.

The Proposed Mergers

In August 1999, the Bureau began reviewing the proposed merger of the Toronto-Dominion Bank and Canada Trust. It assembled a team comprised of in-house officers, as well as lawyers, economists and industry experts.

The team had the benefit of the best database available in Canada today. It was first assembled during the Competition Bureau's 1998 review of the proposed mergers of the Toronto-Dominion Bank and Canadian Imperial Bank of Commerce and of the Royal Bank of Canada and Bank of Montreal. Since there have been no significant developments in the financial services industry and market shares have changed very little, the Bureau was able to easily update the database.

In reviewing the proposed merger of Toronto-Dominion and Canada Trust, the Bureau used the following analytical framework:

1. The first step was to define the product and geographic markets in which the two financial institutions currently compete. Competition for some products, like branch banking, is local. For others, such as the issuing of credit cards, it is national.



2. The Bureau looked at all the products the two financial institutions and their competitors offer. It focussed primarily on offerings in Southern Ontario, British Columbia and Alberta where most Canada Trust branches are located. The Bureau then reviewed market share and concentration levels for each market in which Toronto-Dominion and Canada Trust compete.

• Where the merging companies' market shares exceeded 35 percent, or the combined share held by the four largest competitors (post merger) exceeded 65 percent, the Bureau conducted a detailed review. This resulted in an in-depth analysis of the following lines of business:
   
• branch banking for individuals; and
• credit cards, including products and services for both consumers and businesses.
   
• There was very little overlap between the other products offered by the two financial institutions.
   

Conclusions and Proposed Remedies

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 for 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.

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 results of the Competition Bureau's examination are set out in the following documents:

Letter to

Mr. A. Charles Baillie
Chairman and Chief Executive Officer
Toronto-Dominion Bank

and

Mr. Edmund Clark
President and Chief Executive Officer
Canada Trust

Appendix A: Glossary
Appendix B: Criteria Used for Local Market Classification
Appendix C: Overlap Markets
Appendix D: Undertakings

For further information, please call:

Julie Hébert
(819) 953-4257

Frances Phillips
(613) 795-9948