New York-based research firm CreditSights Inc. has run various scenarios involving a Canadian bank buying troubled U.S. bank Washington Mutual and concludes that TD Bank Financial Group, or possibly Bank of Montreal, are the most likely candidates.

In a research note, the firm examines the possibility of an acquisition by four of the Big Five Canadian banks: BMO, Bank of Nova Scotia, Royal Bank and TD Bank. In each case, it indicates that such a deal would significantly expand the Canadian banks’ branch presence in the .US. Only TD would have some overlap in the New York metro area, which would give it room to enjoy expense synergies.

“Our analysis indicated that a potential acquisition of Washington Mutual would be significantly accretive to all four Canadian banks’ earnings. However, due to the potential capital outlay to offset possible [mark-to-market] adjustments to WaMu’s risky assets ($16.6 billion), the acquisition may result in an [internal rate of return] that barely meets the desired threshold,” it says. “Generally, an acquirer would look for an IRR of at least 15%; and based on our calculations, many likely acquisition scenarios barely meet this hurdle.”

It finds that BMO and TD have the most favourable IRRs in a “no premium deal and a capital outlay.

“TD has been reported to be interested or in talks with WaMu and has the most expansive presence in the U.S. by deposits and branches. So, we sense that it could be the mostly likely Canadian bank bidder for the entire company or some of WaMu’s deposits,” it concludes.