Canadian banks appear to be pursuing different strategies when it comes to U.S. retail banking, with two of the Big Five recently making significant acquisitions south of the border, another standing pat and signalling that it might consider exiting the U.S. retail space altogether, and the remaining two largely avoiding the sector in favour of other opportunities.

The differing strategies are the result of each bank’s respective long-term vision for growth, as well as each institution’s viewpoint regarding the opportunities and risks of doing business in the U.S. retail market.

Bank of Mon-treal’s acquisition of Milwaukee-based Marshall & Ilsley Corp. for US$4.1 billion in December will expand Toronto-based BMO’s scale and reach in the U.S. Midwest and beyond once M&I is combined with BMO’s existing Chicago-based Harris Bank unit, allowing the Canadian parent bank to participate in what it believes will be a steadily recovering U.S. economy.

“It comes back to your confidence in [U.S.] economic growth,” said Bill Downe, president and CEO of BMO, during the Canadian Bank CEO conference for financial analysts, held in Toronto earlier this month. “We think that positive [gross domestic product] growth, real GDP growth of 3% [projected in 2011], is a very constructive environment — particularly when you’re looking at a business-led recovery.”

For Toronto-Dominion Bank, its acquisition of Farmington Hills, Mich.-based Chrysler Financial Corp. for US$6.3 billion in December represents an opportunity to pick up a distressed firm at a modest price and gives TD a much needed channel for loan origination in the U.S., where TD has already built up a 1,300-branch retail network.

“We have a very deposit-rich franchise, with over US$130 billion of U.S. deposits,” said Ed Clark, president and CEO of Toronto-based TD during the conference call to discuss the deal. “We’ve been looking for a platform to help us accelerate our asset generation and capability. The Chrysler Financial acquisition delivers that for us.”

Securities analysts generally applaud both banks’ acquisitions, but identify integration risk as a key factor, particularly for BMO, which lacks experience in merging large banks.

“The biggest challenge for the bank is being able to execute,” says Brenda Lum, a financial analyst with DBRS Ltd. in Toronto. “This is a big acquisition compared with others BMO has made.”

In contrast to BMO and TD, which appear to be recommitting themselves to their U.S. retail units, Toronto-based Royal Bank of Canada is showing signs of fatigue south of the border. This year, RBC says, it will focus on working on trying to turn around its North Carolina-based RBC Bank platform, which has long been a drag on overall earnings. In October, RBC sold off its U.S.-based insurance business, a move many analysts have interpreted as a signal that the bank has soured on the U.S. retail sector.

So far, RBC has not tipped its hand about its plans for its U.S. unit. But recent comments by Gord Nixon, RBC’s president and CEO, suggest that he’s not sold on the long-term appeal of staying put: “You want to be convinced if you’re going to deploy capital in the retail banking business in a market like the U.S., that you can generate superior rates of return. I think that, historically, that has not been the case across the whole [U.S. banking] industry. And I think the jury is out, in terms of what the returns in that business will be in the future relative to other alternatives.”

Instead of looking for acquisitions in the U.S. retail space, RBC’s focus appears to be on growing its wholesale and wealth-management businesses, both at home and abroad. In October, RBC bought Britain-based wealth-management firm Bluebay Asset Management PLC for £963 million ($1.6 billion).

The other two major Canadian banks have been busy making acquisitions, but not in the U.S. retail space. Bank of Nova Scotia, which announced in November that it was buying the rest of Toronto-based DundeeWealth Inc. it didn’t already own, had kicked the tires at a number of troubled U.S. banks last year. But Toronto-based Scotiabank finally decided they weren’t worth the cost, even at discounted prices.

Toronto-based Canadian Imperial Bank of Commerce, which in June bought Citigroup’s Canadian MasterCard credit card business, has had a difficult history investing in the U.S., and CIBC is now concentrating primarily on domestic growth.@page_break@That Canadian banks are making deals again is not a surprise, analysts say. Flush with capital and recently given greater latitude by the industry regulator to deploy it, the Big Five are seeking growth by acquisition.

A strong Canadian dollar and stable earnings from the banks’ Canadian-based businesses has also helped create flexibility, analysts say. Says Lum: “When you have a very strong domestic base of operations, it affords you opportunities.”

Although Canadian banks’ domestic earnings remain strong, their management teams believe that big growth is likely not to come from business at home — where overleveraged Canadian consumers are expected to rein in their borrowing — but from other markets. Analysts agree and, although both the BMO and TD acquisitions may take time to be integrated, the parent banks should benefit from the moves down the line.

“Strategically, I think both deals are going to make sense for the banks in the long term because [foreign markets] are where earnings growth is going to come from,” says Marc-André Robitaille, president and portfolio manager with Montreal-based Robitaille Asset Management Inc. and manager of AGF Dividend Income Fund, sponsored by AGF Investments Inc. of Toronto.

Both TD and BMO say they may make other acquisitions in the U.S. should good deals that fit their strategies emerge, although both Canadian banks stress they will remain selective and cautious. Clark says that TD will concentrate on making smaller acquisitions for now, and will pull the trigger only if the fit is right.

For BMO, the deal for 164-year-old M&I is a game-changer in terms of BMO’s U.S. footprint. BMO has long taken a conservative approach to growth in the U.S., drawing criticism from some financial services industry observers that BMO was being excessively cautious. The M&I deal appears to be the transformative event the Street has long been watching for.

“It resolves a big strategic issue for [BMO],” says Gavin Graham, president of Graham Investment Strategy Ltd., a Toronto-based investment consultancy. “To its credit, by holding off until the financial crisis, the bank ended up getting one of the best regarded franchises in the Midwest.”

In the all-stock deal, BMO has acquired 374 M&I branches and US$53.4 billion in assets under administration. When combined with Harris Bank, the operation will total 686 branches and US$176.9 billion in AUA.

In purchasing M&I, BMO says it will repay the U.S. government for the US$1.7 billion in Troubled Asset Relief Program preferred shares on M&I’s books. BMO also says it intends to issue roughly US$800 million in BMO common shares just prior to the expected closing of the M&I deal (sometime this summer) in order to support BMO’s capital reserves, which BMO says will still comfortably surpass Basel III regulations. BMO estimates it will take until 2013 before the deal becomes accretive to earnings.

In early January, BMO announced a shuffling of senior management that saw Russ Robertson, the bank’s CFO, named executive vice president of business integration and vice chair of Harris. Robertson will oversee the integration of M&I and Harris Bank.

The deal for Chrysler Financial, on the other hand, will turn TD into a top five bank-owned auto-financing lender in North America. The bank has paid New York-based Cerberus Capital Management LP US$6.3 billion in cash, including US$5.9 billion in fair value for net assets, and US$400 million for goodwill. In the deal, TD acquires all of Chrysler Financial’s more than 2,000 dealer relationships, processes and technology, and its existing portfolio of US$7.5 billion in loans.

Once the deal closes, TD says, the bank will bring Chrysler Financial under the TD brand and move its headquarters to Toronto, although the acquisition will continue to be a North American business. Tom Gilman, president and CEO of Chrysler Financial, will continue to head the unit.

Analysts say that Chrysler Financial’s auto-lending business could flourish once again under TD. At the auto-financier’s peak, it generated US$30 billion in loan originations annually. TD says it’s hoping to produce return on invested capital of about 20% on the business in three or four years.

“This is an asset class that has held up well during the cycle,” says Clark. “It’s fairly obvious that people want to have their cars; because if they don’t have cars, it’s hard to have jobs.” IE