The Motley Fool

Should You Buy Bank of Montreal or Toronto-Dominion Bank to Bet on the Strong U.S. Dollar?

Canadian investors are watching the loonie tumble against the greenback and wondering how they can profit from the spread.

The obvious choices would be companies that sell their products in U.S. dollars but have Canadian dollar expenses. Unfortunately, many of those names are in the commodity space and the prices of their products are falling as the U.S. dollar rises.

One place to look is the Canadian banks, and the two with large retail operations in the U.S. are Bank of Montreal (TSX:BMO)(NYSE:BMO) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

Bank of Montreal

Bank of Montreal first invested in the U.S. in 1984 when it purchased Chicago-based Harris Bank. The company quietly grew the business over the next 26 years and then went all-in when it announced the US$4.1 billion acquisition of Milwaukee-based Marshall & IIsley Corporation.

The combined operations are called BMO Harris Bank, which operates more than 500 branches serving two million customers. Bank of Montreal also recently announced the purchase of GE Capital’s Transport Finance business.

The U.S. operations hit a milestone this year, surpassing $1 billion in adjusted earnings.

The results from the most recent quarter underscore the effects of the strong greenback. In U.S. dollars, Q4 adjusted net income rose by 4% to US$157 million when compared with Q4 2014. In Canadian dollars, Q4 net income from the U.S. operation was $221 million, up 22% compared with the previous year.

Bank of Montreal earned adjusted net income of $4.681 billion for fiscal 2015, so the U.S. operations accounted for more than 21% of overall profits.


A decade ago, Toronto-Dominion had no retail presence in the United States, but a massive $17 billion buying spree has built an extensive branch network that runs right down the U.S. east coast from Maine to Florida.

Today, Toronto-Dominion is a top-10 bank in the U.S. with more than 1,300 locations. In fact, the bank has more branches south of the border than it does in Canada.

The company reported fiscal Q4 2015 adjusted net income of $2.177 billion. The U.S. retail operations contributed $646 million, or about 30% of total profits.

The U.S. dollar-adjusted earnings increased by 6% in the fourth quarter, but the profits were 27% higher when converted to Canadian currency.

Which should you buy?

Toronto-Dominion gets more of its overall earning from the U.S. retail group, and its branch network is about double the size of Bank of Montreal’s. If you simply want the largest U.S. exposure, Toronto-Dominion is the way to go.

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Fool contributor Andrew Walker has no position in any stocks mentioned.

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