globeinvestor.com

News from The Globe and Mail

John Partridge

Friday, October 11, 2002

Toronto-Dominion Bank chairman and chief executive officer Charles Baillie is handing the CEO mantle to second-in-command Edmund Clark at the end of the year, and turning over the title of chairman in 2004.

TD marked Mr. Clark's 55th birthday yesterday by announcing he will take over as CEO on Dec. 20, the day Mr. Baillie turns 63.

The bank, Canada's third biggest by market capitalization, also said that its board of directors' "present intention" is that Mr. Clark, currently president and chief operating officer, take over the chairmanship at the 2004 annual meeting.

However, acknowledging that there is a growing push in regulatory and corporate governance circles to separate the posts of chairman and CEO, Mr. Clark conceded that this may not happen.

TD's board, he said yesterday, "wants to reserve the right to review the decision at that time and, in the context of what corporate governance would tell you to do, make the appropriate decision."

Mr. Clark professed not to care whether he gets the second title -- "I can live with not becoming chairman" -- insisting that what matters is what is best for the bank.

However, he has no intention of giving up the president's title for the foreseeable future, although he said there is "obviously" a point at which appointing a new president and COO -- and, hence, a likely successor -- "would be appropriate."

Mr. Clark became Mr. Baillie's clear heir apparent when he was given the COO's post in July, 2000. He arrived at TD in 1999 when the bank, in the boldest and biggest acquisition in Mr. Baillie's career, bought Canada Trust Co. for $7.85-billion. Mr. Clark was the trust's president and CEO.

Mr. Baillie is not leaving the bank on a high note. What was seen only a couple of years ago as two of its biggest strengths and two of his greatest achievements -- a heavy push into discount stock brokerage and lending to the telecommunications and cable television sectors -- have hurt the bank badly.

The most dramatic evidence came in the third quarter, when TD took an extra $850-million in so-called sectoral loan-loss provisions -- most of it to cover additional telecom disasters. Combined with continuing poor results at TD Waterhouse, its discount brokerage, this produced a quarterly loss of $428-million or 67 cents a share, only the second loss TD had reported in 15 years. Since then, the bank's shares have been the weakest performer in the Canadian banking sector.

"We got hit with two, twin perfect storms," Mr. Clark told The Wall Street Journal earlier this week.

Mr. Baillie's impending departure is no surprise.

He took over as TD's boss in 1997 when his predecessor, Richard Thomson, turned 63 -- the age at which TD CEOs become eligible to draw their full pension -- and he said at the time that he did not expect to hold the top post for more than about six years.

Mr. Baillie conceded yesterday that it is "easier to retire in good times" and that there was "a temptation to stay around." However, he said that from the point of view of what's best for the bank, this seemed like the most appropriate moment.

"I feel that Ed and his team are in good shape, that they're prepared now," he said in an interview. He added that because TD's 2003 fiscal year begins Nov. 1, Mr. Clark will get pretty much a "full run at the year, rather than having a truncated year."

TD's outgoing boss also defended his big push into discount brokerage, highlighted by the $715-million acquisition of New York-based Waterhouse Investor Services Ltd. in 1996, when he was the bank's president.

Although discount brokerage has been in a cyclical decline since the technology stock bubble burst, sending amateur investors to the sidelines, he said he is convinced that demographic trends alone -- such as people living longer and needing to save more -- mean the sector will again "treat us exceedingly well."

The key aim of both this acquisition and that of Canada Trust, he said, was to lessen the bank's dependence on corporate and investment banking.

"I guess if I could do something differently, I would have accelerated that."

As for the telecom-lending debacle, Mr. Baillie noted that Mr. Clark has plans to shift capital away from corporate lending and reduce the allowable size of its loan exposure to both particular sectors and individual companies, "so that, if there are problems, we are going to be less vulnerable than we are at present."

Mr. Baillie, who joined TD in 1964 with a Harvard MBA under his belt, was born in Orillia, Ont., and has plenty of interests outside banking -- including bird watching, travel and history.

"Charlie is a true Renaissance man," said Peter Godsoe, chairman and CEO of TD competitor Bank of Nova Scotia. He has known Mr. Baillie since they attended the same Toronto high school.

"He's a consummate business person: He's smart and the changes he's made at TD were truly transforming. . . . It's a tough competitor for Scotiabank. But he has this other side. . . . He's very eclectic in his interests."

Meanwhile, Mr. Clark, who has the reputation of being a much more "hands-on" manager than Mr. Baillie, said that as well as cleaning up the bank's loan portfolio, his key thrust over the next couple of years will be to improve operating earnings to enable the bank to take advantage of "the bold moves" made by his predecessor.

Several analysts said they think Mr. Clark's more conservative approach to banking may sit well with investors.

"At this point in time, investors are looking to minimize risk in their approach to the banking sector in general, so the emergence of Mr. Clark as CEO may provide a bit more comfort in how they regard TD Bank's stock," one analyst said.

Another analyst concurred, adding: "I think Ed is a very bright guy and that he will make the whole thing work."
GOOD TIMES, BAD TIMES

Charles Baillie is retiring as chief executive officer of Toronto-Dominion Bank after six years in the job. During his tenure the bank has grown, but has also experienced some major setbacks.

Highlights

Expansion into the United States

Creation of TD Securities

Acquisition of Canada Trust

Acquisition of discount brokerage Waterhouse Investor Services

Setbacks

Massive losses on loans to telecom sector

Loan loss provisions for current year: $2.25-billion

$428-million loss in most recent quarter was just second loss in 15 years

© The Globe and Mail