TD is long used to digesting American banking assets, especially since its purchase of BankNorth. Nonetheless, more goodwill (or the amount paid above book value for assets) on TD's balance sheet is the last thing the company needs during a credit crunch. Undoubtedly, should the deal go through, TD is going to have to raise more capital to fulfill Basel III requirements. Many expect that the extra capital needed could require a new stock issue by the bank of between $500 million and $1 billion. For the Intelligent Investor, new stock issues should not be something to look forward to. It dilutes the value of your shares, and leaves you with a smaller share of the profit pie.
To be sure, TD could make this acquisition work, but investors should be careful. A primary reason why Canadian banks did not find themselves in the terrible mess of their U.S. counterparts is because they were not as heavily leveraged, and because they were not as exposed to the American housing marketplace.
A point of caution for Intelligent Investors: TD has been aggressively increasing its risk profile and its exposure to the United States for years. It now has more branches in the United States than Canada, and it is looking to expand further on its American base. If you are looking for a more clean-cut Canadian investment, investigate CIBC (TSE: CM).