TORONTO — Opposition is growing at the heart of Bay Street against the merger of the companies that run the Toronto and London stock exchanges as Canada’s largest banks pleaded their case to hearings at the Ontario legislature.
“We do not believe this takeover offer is the right solution to creating a globally sustainable exchange and nor will it allow Canada to achieve the benefits of globalization offered,” Bob Dorrance, head of TD Securities, the bank’s investment banking division, told the Ontario legislators.
Other bankers were scheduled to address the hearings later Wednesday afternoon.
The comments by Dorrance followed a report Wednesday that TD (TSX:TD), CIBC (TSX:CM), National Bank (TSX:NA) and Scotiabank (TSX:BNS) were writing a public letter to argue that Canada risks losing its clout as a financial centre if the deal goes through.
Politicians in Ontario and Quebec have already said they’re wary of having Canada’s major financial markets included in an international group headquartered in both London and Toronto.
The deal requires approval by a number of provincial regulators and the federal government under the Investment Canada Act.
In Montreal, investment guru Stephen Jarislowsky, who helped lead the charge against the proposed takeover of PotashCorp by BHP Billiton, said the TMX merger would lead to an exodus of Canadian head offices, unemployment and brain drain of Canada’s top talent to England.
“Where do you think the big investment firms will be? They won’t be in Canada, they’ll be in London,” he said, explaining his expectation that company head offices will migrate to London because it is a larger market.
“Doesn’t that take away an enormous amount of tax revenue? Doesn’t that mean that we educate people for other countries — to leave (Canada) because there are not the opportunities here anymore?”
Jarislowsky said the proposed combination of TMX Group (TSX:X) and London Stock Exchange Group PLC. would lead to another Canadian institution being bought by foreigners.
Ontario Finance Minister Dwight Duncan said Wednesday he has met with a number of Canada’s big banks about the deal.
“There are a number of Bay Street folks that have expressed concerns to me about this deal, and I’m glad they’re speaking up,” Duncan said.
“This isn’t a bunch of wild eyed nationalists who don’t know international business. These questions are now being raised by people who participate in capital markets around the world.”
Duncan has said the TSX is a strategic asset and decisions about its future must be made in the public interest, not just for shareholders.
Observers in the financial industry say opposition by the banks could create road blocks for the potential merger and persuade regulators and politicians to reject the deal.
“Banks have a tremendous amount of power whether through the official auspices of the Canadian Banking Association or individually,” said Tom Caldwell, head of Caldwell Securities and Urbana Corp., which invests in stock markets around the world including the TMX Group.
Caldwell said the fact that the banks own a rival to the Toronto Stock Exchange calls into question the motives behind their opposition to the deal.
“(The banks) would have credibility if they didn’t own their own exchange and be building it and trying to take away volume from the Toronto Stock Exchange,” Caldwell said.
The six biggest Canadian banks, as well as Canaccord Capital, the Canada Pension Plan Investment Board and Desjardins Securities, set up the Alpha alternative market in 2008, and if the Toronto Stock Exchange gets bigger by joining with the LSE, they could face increased competition.
Alpha is an electronic trading system that estimates it represents 20 to 25 per cent of all trading volume of TSX-listed securities.
The CEO of Alpha Group has argued the TSX-LSE merger would result in more decision-making happening outside Canada.