Big, publicly traded companies have been likened to sharks, which have to keep swimming to start sinking. Competing in areas where margins are thin but needing to show shareholders they are moving forward, they are logical candidates for acquisitions and mergers. In the banking sector, which has had its share of such consolidations, there is the further impetus that bigger corporations have bigger capital needs. Needs that only banks with serious financial expertise and clout can serve.

M&A activity is not always evident. Recessionary times tighten appetites along with belts. But merger fever sometimes gets a grip when economic activity picks back up again, as now.

Recently, two very, very large banks have made bids to enter Vermont: Toronto Dominion, which seems likely to acquire a 51 percent share of Banknorth; and Citizens, which was assisted by its parent company the Royal Bank of Scotland in buying Charter One. The tectonic plate movement for the deals may have originated elsewhere, but the banking industry is watching for tsunamis.

So far, Vermont has managed to retain a significant number of community-scale banks, whose customers appreciate personal service and whose shareholders prefer steady to perhaps spectacular returns. But even these institutions may feel the effects of the Citizens deal, not least because Vermont president Jim Keyes has extensive experience here, and is determined to remain and make his company live up to its name by providing locally oriented and socially responsible service.
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Big And Bigger

The Federal Reserve gave its approval January 18 for TD Bank Financial Group (NYSE: TD), headquartered in Toronto, Ontario, to purchase 51 percent of the stock of Portland, Maine-based Banknorth Group, Inc. (NYSE: BNK). A stockholders' meeting February 18 approved the deal, for which the bank had prepared by removing debt from its balance sheet and spending money on M&A costs, causing their 2004 profits to drop 14 percent from 2003 despite record Q3 earnings. Without those costs there would have been an 11 percent increase in earnings, with 2004 loans and leases up 13 percent to $17.7 billion.

Also in 2004, Banknorth completed Massachusetts acquisitions of the Foxborough Savings Bank and the CCBT Financial Companies, the holding company for the Cape Cod Bank &Trust Co. They also agreed to buy BostonFed Bancorp, Inc. in 2005. At year's end, Banknorth had $28.7 billion in assets, from operations in Maine (Peoples Heritage Bank), New York (Evergreen Bank), and the Banknorths of Connecticut, Massachusetts, New Hampshire and Vermont.

Toronto-Dominion, with a market cap of about $26 billion, increased its branches to 230 in 2004 by acquiring 57 from the Laurentian Bank, and bought the Liberty Mutual Group insurance business (total employees as of early February: 42,843). Toronto-Dominion is the TD in the global investment firm TD Waterhouse. At the close of their fiscal year on October 31, net income applicable to shares of common stock totaled $2.23 billion Canadian dollars, up from $989 million.

But the impacts of this cross-border alliance may not be immediate and obvious. "We're stiff a company that operates on its own," said Philip Daniels, president and CEO of Banknorth Vermont. "Their interest and their policy is to allow us to run our bank as we have in the past," he said, meaning there won't be a wave of consolidation-related job losses. No change in the operating system, no change in the management team.

"It gives our banking organization the capital that is needed to go out and do other acquisitions," Daniels said. But in Vermont, Banknorth is already number two in market share, and attempts to grow larger by purchasing other Vermont banks could easily bump into limits set by regulators, he observed.

On the commercial side, however, it will make a difference that they are allied with Canada's third largest bank, Daniels said. "They have a lot of investment in international banking," he said, and "we see that as a really great benefit for Vermonters trying to attract business from Canada."

Another thing they bring, Daniels said, is "they can help us in doing very, very big deals." Banknorth has been able to handle transactions up to $40 million, but if something on a bigger scale came along - such as a very large company wanting to set up a Vermont operation they will have the resources to help.

Toronto Dominion is one of the most technologically advanced institutions in its banking system, Daniels said. This will be "an opportunity to look at how they do certain things," he said.

Toronto Dominion has looked at Banknorth's employees, and they liked what they saw, Daniels said. One of the greatest benefits of the merger is that "our staff didn't want to have to wake up every day wondering if we would be bought by a big bank and lose a quarter of our jobs. Our staff is our most important asset. We think it's important that they have that peace of mind."

"It's almost all upside and very little downside," Daniels said of their arrangement.