“Toronto-Dominion Bank, having failed to strike a deal to combine its U.S. discount-brokerage operations with a major online player, is on the prowl for a U.S. bank,” writes Susanne Craig in today’s Wall Street Journal.

“In an interview Wednesday, Toronto-Dominion Chief Executive Officer Edmund Clark said he has decided to expand the bank’s Waterhouse discount-brokerage operations despite his inability to strike a deal with an online broker that would give him the ‘dominance’ he was looking for. Among his options: buying a retail bank that would allow TD to get the most out Waterhouse’s existing branch network.”

” ‘That is a space we know and yes we will take a look at a retail bank in the U.S.,’ he said.”

“E*Trade Financial Corp. and Waterhouse broke off merger talks Sunday after the two financial-services concerns failed to agree on terms related to control of the proposed combined entity. Toronto-Dominion failed to reach a deal with online broker Ameritrade Holding Corp. for similar reasons, according to people familiar with the matter.”

“Mr. Clark said that the bottom line is he isn’t willing to give up management control of Waterhouse. As a result, he said he plans to step up his efforts to build Waterhouse, by increasing advertising spending as well as by looking at U.S. banks that would complement Waterhouse’s retail-driven strategy, which includes 150 branches across the U.S.”

“The wind is at Toronto-Dominion’s back as it reassesses where to take Waterhouse. Since it hired investment bank Goldman Sachs Group Inc. last May to assess Waterhouse’s options, shares of firms like E*Trade and Ameritrade have more than tripled in value. Toronto-Dominion bought Waterhouse in 1996 for about $720 million Canadian dollars (US$557.5 million). In 1999, at the height of the Internet boom, TD Bank raised about US$1 billion by selling 12% of the then-renamed TD Waterhouse unit in an initial public offering. By the end of 2001, as the stock market continued to droop, the bank bought back the public float for US$386 million.”

“TD Bank began weighing options for Waterhouse after Mr. Clark was named CEO in October 2002. The bank was reeling from losses on soured corporate loans and was looking broadly at all businesses with an eye to squeezing out more profit or dumping unprofitable businesses.”