WRAPUP 1-Canadian banks mull use of excess capital

By Andrea Hopkins

TORONTO, Sept 16 (Reuters) - Canada's biggest banks are weighing options for using their excess capital, with acquisition opportunities, dividend increases and share buybacks under consideration, executives said on Wednesday.

Speaking at a Toronto financial summit, the heads of the nation's big six lenders agreed they would soon face a wealth of buying opportunities as the global banking sector consolidates and the well-capitalized Canadian banks in an excellent position to strike deals.

'We find ourselves in a position where arguably we have low levels of leverage and high levels of capital,' Royal Bank of Canada Chief Executive Gord Nixon said.

'We will use our excess capital ultimately for repatriation, whether it is share buybacks or dividend increases, or to utilize in terms of funding acquisitions and investments,' Nixon said, noting the Canadian banks were probably well above any capital requirements that could be imposed in coming months or years by global regulators.

Canada's biggest six banks have emerged from the financial crisis at the top of the global banking heap, having accepted no government bailout money and remaining mostly profitable throughout. Tier 1 capital ratios are close to -- or above -- 10 percent.

Nixon, head of Canada's largest bank, said he sees significant acquisition opportunities over the next two to five years, particularly outside of Canada, and echoed rivals Toronto Dominion Bank and Bank of Montreal in pointing to the U.S. market as a place to expand.

'Going forward, a lot of options will be looked at in terms of the best way to make sure we can participate in the banking market in the United States in a way that is more relevant than the current operation,' Nixon said.

Bank of Nova Scotia, Canada's No. 3 bank, has focused its expansion efforts on less developed markets, and Chief Executive Rick Waugh said the bank remained focused on growing in Latin America, the Caribbean and Asia.

Like several of his fellow CEOs, Royal's Nixon said he expected his bank's Tier I capital level -- which at 12.9 percent tops all Canadian rivals and is well above global levels -- to come down as the financial sector normalizes.

Whether the cushions would fall because money is spent snapping up assets or through dividend increases or share buybacks was a common question at the conference.

Canadian Imperial Bank of Commerce Chief Executive Gerry McCaughey said that while the bank's Tier 1 ratio, at 12 percent, was at the high end of what is required, Canada's No. 5 bank was not prepared to do buybacks or boost the dividend.

'What we would do, if the Tier 1 came down naturally as a result of well-priced, well-risked activities within the Canadian marketplace, then we would use some of our Tier 1 ratio for some of the items I talked about -- supporting our retail clients or the corporate lending business,' McCaughey said.

BMO Chief Executive Bill Downe also focused on investment opportunities, saying the bank was about to see a 'once-in-decades' opportunity for growth.

'I can tell you that today at BMO we have the platform, the capital and the customer orientation and the expertise to be a market leader,' Downe said, noting there were good opportunities to acquire small U.S. banks.

BMO's U.S. retail banking unit, Harris Bank, serves the U.S. Midwest, and Canada's No. 4 bank has said it does not intend to stray from that geographic strategy.

While the Canadian banks are understood to be actively looking for global acquisitions, several admitted they were also facing pressure to return excess capital to shareholders. Most of the big banks raised the capital over the past year through the sale of shares or debt, diluting earnings.

Unlike many global competitors, none of the Canadian banks cut their dividends during the financial crisis, and now investors have begun to wonder when the payouts will increase.

'So far we've decided to maintain quarterly dividends,' National Bank of Canada Chief Executive Louis Vachon said.

'Yes, we're getting a fair amount of questions. ... 'What are you going to do with that excess capital?' We want to wait to see confirmation of the end of the recession (before deciding),' Vachon said

'Clearly our priority will be to use any excess capital to fund organic growth and some acquisitions. That being said, we like the combination of some capital being used to fuel growth and some of that to fuel capital management,' he added.

While some executives also argued they wanted to see what the new global banking regulations might have to say about capital -- the issues will be addressed at the G20 summit later this month in Pittsburgh -- the ultra-conservative Canadian banks generally have such high capital levels that official requirements will remain below their internal standards.

(Reporting by Andrea Hopkins and Pav Jordan) Keywords: CANADA BANKS/ ([e-mail]; [phone]; Reuters Messaging:[e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.