Wednesday June 12, 2002

Thank you, and good evening everyone.

I've lived in the London area for 20 years, and I always look forward to those occasions when I can come home during the week on business. Unfortunately, today I had to come direct from Toronto and have to return directly there tonight. No time even to say a quick hello to my family, and so I didn't tell them I was coming. If we could keep this between just the 400 of us I'd appreciate it…

I'd like to thank the St. Thomas and District Chamber of Commerce for inviting me to speak at this distinguished event. I know this occasion attracts some exceptional speakers, and I'm honoured to have been included on that list. I'd also like to thank them for the great planning - I wouldn't want to be speaking on the night when the Detroit Red Wings win another Stanley Cup.

When I was asked if I'd be interested in speaking to this group about the merger of TD and Canada Trust, I jumped at the opportunity. Not because it meant I could spend some time in The Railway City or because I like the attention - though those are definite pluses. It's because the merger is such a great story to share. And not because it's been such a great success or that I had a role to play - although it has been and I did. It's because of the groundwork this merger laid for the future of the financial services industry in Canada. How to build a better bank for Canadians, as it were.

So this evening I'll share with you the story of the merger. The condensed version, of course, since this event doesn't last a week. The chapters of the story are:

1. Why the merger happened;
2. What our plan was and how we made it work;
3. How we did; and
4. What's next for TD Canada Trust

So why the merger? TD's long-term goal was and is to be the leading Canadian-based North American financial institution. But how to get there? Well, TD believed and continues to believe that scale is important. That means TD has to be big enough to manage and grow its business cost effectively, and to be big enough to compete in the North American marketplace. Scale enables an organization to spread the costs of growth over a larger base. It enables the investment of more dollars than the competition on things like technology to make things easier for our customers and spending on our brand so we can differentiate ourselves. We believe that with the advent of telephone and web banking, branding is actually becoming more important, not less important.

And so to that end, in the summer of 1999, TD announced its intention to acquire CT Financial Services, the parent company of Canada Trust. And the deal was done in February 2000. At this point in some other story, one might say "and the rest is history." But in this story, the… "fun" was just beginning.

Having been through 3 mergers now in my career, I can say with confidence that most senior management love to get the deal done, with the challenge of the negotiations, the celebrations, and the attention around the closing of the deal. Unfortunately, the very next day, reality sets in. Everyone is reminded about how many mergers fail. The people at both companies are all distraught with the uncertainty. You as an executive face the daunting task of making it work and proving the pessimists wrong. In fact, I'm actually still quite young - it's the stress of having been an executive through 3 mergers that's earned me all this gray hair.

This was going to be a large and very complex merger. Nothing of its size or importance had been attempted before in Canada. Not only would it be the largest financial services merger in Canadian history at $8 billion, it was unlike previous bank mergers in that Canada Trust was not in trouble. TD was buying a strong, successful company and, as part of the deal, wanted to adopt the Canada Trust business and service model into its retail business - an unusual move for an acquirer. In many respects, this merger was a transformational move for TD.

When the dust had settled from the deal-making and regulatory approvals, we had to face the enormity, and risk, of the task before us. How were we going to successfully merge 2 very large companies, 15 hundred branches, 44 thousand employees, 10 million customers and 265 billion dollars in assets? All under intense scrutiny from customers, media, politicians, the financial community and last but certainly not least, our people, who we needed to get this done?

Added to all that was the nature of the modern banking industry in Canada. It's become a pervasive, 24-7 business, with telephone and web banking and the onslaught of debit cards. Did you know that Canadians are the largest per-capita users of debit cards in the world? The transaction volumes are just enormous - our system alone processes up to 700 transactions per second on a busy Saturday! So if the system goes down, it's a big problem. There are some glaring examples from the U.S.

Fleet Boston once lost its ABMs and could not recover - for two weeks. This was scary, uncharted territory we were dealing with. The risks and fear of bringing our systems down and interrupting services to our customers were enormous and high on our minds.

Yet in spite of all that, by the end of summer 2001, there was one brand, one system, and one suite of products under the TD Canada Trust brand and banner. Integration actually went remarkably smoothly. I'm not saying we didn't have any problems along the way. But it was remarkably smooth compared to many examples in the U.S. Through to the end of 2001, we succeeded in increasing market share as well as revenue and net income, at a rate faster than our competitors - this was unprecedented in U.S. bank mergers. Aside from predictable downward blips following actual branch conversions, customer satisfaction has actually steadily increased since November and is now higher than before the merger - again, unheard of.

Wait…how did we do it? Right…by developing a plan and sticking to it. But also by staying close to things that were happening and responding to issues as soon as they arose. Paying close attention to the inevitable dips in customer and employee satisfaction right after conversion - and responding to it - was important to our success.

Our plan had some key elements that were absolutely critical and would determine the extent to which we would succeed or fail.

First, we needed to land on a compelling vision. Since no one had any idea what they were in for, we needed something that would tell people where we were headed and to have them feel good about that. Something that would serve as a beacon in a sea of uncertainty. "Building a better bank" fit the bill perfectly. We also developed guiding principles to steer us during the merger. We continue to live and breathe them today. These are things like "Put customers first" and "Treat our people the way we want them to treat our customers" - our top two guiding principles. Our people hold senior management accountable to live by them every day. And we ask them to call on us if we don't.

Second, we made big decisions early.

1. I've learned from previous mergers that the first word in merger is "me." And so we had to create certainty as soon as possible by answering those "me" questions quickly and honestly. How will all this affect me - do I have a job, who do I report to, how does this impact my pay and benefits, what do you want me to do? Our senior executive team knew and communicated the answers to these questions within 30 days of the close of the transaction to all our titled officers.
2. The target systems platform was the next big decision - and we decided on TD's. This decision generated lots of debate and emotion. Canada Trust had a great retail banking platform. But it had no commercial banking capability and it wasn't scaleable to the size of the new organization. And intuitively, it didn't make sense to convert the larger branch network and customer base. This was a big decision with lots of implications. The reality was that we were going to the Canada Trust business model with TD systems - and your systems are inherently part of the business model and service proposition.
3. We decided to "convert" branches in 4 regional waves. Converting means accomplishing all the necessary activities to serve our customers under the brand name TD Canada Trust. So, account information would be on one system, there's one suite of products and all branches display the same signage and promotional material. That is, there's a single brand.
   • The Maritimes were first - our live pilot so to speak - followed by BC/Alberta and Prairies/Quebec. All working up to Ontario, where 70% of our customers are and where the media spotlight shines brightly. We were all on pins and needles for Ontario and what might - or might not - happen.
   • We went the wave route for some really practical reasons. By taking a gradual approach, job loss would be minimized; natural attrition would help. As well, the task simply would have been too monumental to do all at once - too big and complex a job and one in which any problems would carry a severe cost. And, it enabled us to learn and adjust as we went along. So, for instance, we learned that "plaiding" - the mixing of 'green' TD employees and 'red' Canada Trust employees together in a branch - was absolutely key to conversion success, as it enabled employees to support and learn from each other right on the front line as they were going through the change. Not plaiding the former Canada Trust branches would have been like opening 430 brand new branches on one weekend all filled with employees who were new to the organization. Only worse, because unlike a new branch, these branches had existing customers who were going through the change with them - a change none of them had asked for.

     In addition to learning what we did right, we learned what we did wrong. A wise man once said "Probably he who never made a mistake never made a discovery." Not that we set out to make mistakes. But we sure learned from the few we made and applied those learnings to the next wave of conversion. For example, we did experience a short systems problem in the early going of the Maritimes conversion. But in the second, BC/Alberta conversion, customers experienced no service interruptions. We had learned from and corrected the problem.

The third key element in the plan was to communicate, communicate, communicate. In a merger, all the regular protocols are rewritten, and it's a very destabilized environment. Which is why you have to move quickly, or the grapevine takes over. At the most senior levels, there was a commitment to communication, with employees, customers, community leaders and shareholders. We were looking for repetition and consistency in our messaging.

• We sent out lots of written communication to employees, but face-to-face was the preferred method. We learned that people don't necessarily read things you send them, but they sure listen up during a session with their manager or the CEO. I must admit it got tiresome to live on an airplane, and day after day say the same things a hundred times. But it's what people needed. And, when it's important enough, they speak up too. Loudly, in some cases. I remember some of those sessions that Ed Clark and I personally conducted across the country right after the conversion. Very emotional at times, and an eye-opener for us to see just how much personal stake our employees had in the merger. It wasn't merely something that was happening "at work" - it was part of their lives. And again, the recipe we followed was that clear, consistent message. Listen, learn, take the blame, show empathy, but keep bringing them back to your core messages. Which were always about:
  - Focusing on what you can control
  - Keeping both eyes on the customer
  - Committing to fixing our problems. And of course, fixing them. Your actions speak louder than your words.
  - And telling them you need them and their support and commitment. Thanking them in advance for it.
  
  • Ed Clark was our customer champion. You probably remember all those one-page "merger updates" from him in the newspaper. They were just one element of a wide-ranging customer communication plan aimed at keeping customers informed of all the changes affecting them. In the first quarter of 2001, for example, we distributed well over 3 million personalized information packages.
  • We kept politicians informed every step of the way. And they had an overwhelmingly positive response to the way the merger - and particularly communication - was handled. A central element of the strategy involved senior local TD Canada Trust managers meeting with their federal Members of Parliament on a regular basis to keep them informed of local implications of the merger. They engaged in active dialogue with MPs, listening to their concerns.
  • Finally, we were very open with our shareholders about revenue growth, expense synergies - and the timing - that we expected. We also talked to our shareholders about customer satisfaction - a first, as I understand it.

A fourth key success factor was the creation of the so-called Implementation Management Office and its strong project management discipline. At the end of the day, this was all about our ability to manage a huge, complex project and execute well. Everyone had to deliver, and deliver on time and with quality, if conversion was going to succeed.

British statesman and author Benjamin Disraeli once said "The secret of success is constancy to purpose." Every one of our people, from Charlie Baillie, Ed Clark and myself, to the folks in the branches, to all the various support groups, were focused on this project.

Finally, but perhaps most importantly, we put customers and employees at the top of everything we did.

• We formed Customer and Employee Experience Committees and articulated 10 commitments to employees, customers and communities - especially London - signed by both CEOs. We analyzed and understood the impact of the conversion on customers and employees, right down to the lowest level of detail.
• We had an unwavering focus on customer retention. We knew if we couldn't keep customers, the merger was worthless.
  We made a promise to our customers that they would experience an unparalleled level of service at the new TD Canada Trust. A service recovery program gave branch employees the power to respond proactively with goodwill to any customer concerns as we went through the difficult post-conversion period. They had expanded discretion to reverse service charges without obtaining manager approval.
• During the conversion process, a team of senior executives traveled across the country to meet with employees and hear how they were handling things - what was working and what was holding our people back from delivering superior customer service. These sessions proved so popular and valuable that we continue them today. Ed and I also continue the practice of issuing "trip reports" when we get back. Apparently these are dreaded in head office. I suppose that's because we can get rather verbose when talking about our heroes on the front lines and what head office has to do to make them better able to make our customers comfortable. We also continue to issue a bi-weekly employee newsletter - called Building a Better Bank. It celebrates our successes, highlights process improvements we've made and reinforces what's next as we continue on our journey to build a better bank. It's critical that our employees continue to feel more comfortable with the new bank - if they don't, our customers never will.

So, how'd we do? Well, by several measures, pretty well. We exceeded our business case targets for revenue growth and profit. And we increased market share - unheard of in the midst of a merger!

• But when I look back on this whole process, it's our customer service accomplishments that I'm most proud of. As I mentioned, we did have anticipated dips in customer satisfaction following conversion, but our customer satisfaction index is now higher than before the merger, and continues to trend upward. We're well on the way to exceeding our very aggressive customer satisfaction targets for this year. And we more than met our targets for retention of customers.
• Twice a year we conduct a company-wide employee survey to measure their satisfaction. During the conversion process, we also surveyed employees the month before and for 6 weeks after each wave. These surveys are designed to highlight key areas where we're being successful and areas that need to be addressed. Results are taken very seriously, and are acted upon.
  Here's an interesting tidbit. Typically in a merger situation, 90% of executives in the acquired company leave within two years. In our case, only 35% of Canada Trust executives left.
• We're on track to realize expense synergies through the reduction of 4,900 positions and 275 branch mergers. Here's another stat: over 90% of branch mergers have involved branches less than 2 km apart, and most of those involve branches practically at the same intersection.

We've also received unsolicited feedback - from other executives, politicians and shareholders - that suggests people are generally happy with the way things have gone.

Lastly, no matter what anyone says, a merger of this size is a lot of hard, emotional work over a long period of time - it's definitely a marathon and not a sprint. The pressure is enormous - everyone watching and predicting failure. It can't be done without a lot of devoted people. This merger - and particularly the branch conversions - had to work and did work, largely through the commitment and efforts of our people.

We knew there were going to be some problems…and there were. Some issues we expected, others we didn't. We couldn't have predicted, for example, that when the signs changed, people all of a sudden started to bank at a different branch. We struggled to manage the influx where it wasn't expected.

This relates to one of our bigger problems, which was the effect of the explosion in transaction volumes following conversion. We knew this would occur, but we weren't expecting a 30% surge for a month. Turns out everyone with a passbook wanted it updated, to make sure we hadn't lost their money. This would have presented problems in a normal operating environment, but it came at a time when our people were not confident and still learning new systems and processes. What used to take a teller 1 minute was taking 2. What's more, many customers hadn't read any of the stuff we'd sent them and so weren't familiar with a lot of the changes. It was like the "perfect storm," all these problems converging on us all at once. We added over 1,000 staff to help us through this perfect storm for the Ontario conversion - with our decision to do the conversions in waves, we knew what was coming when we got to Ontario, where 70% of our customers and branches were.

But it wasn't so much that there were problems that mattered. It was how and how quickly we reacted that mattered. For example: I mentioned earlier that in our Maritimes conversion we experienced a service outage. This was for a few hours on the Friday evening, during which time some Canada Trust customers couldn't use their ABM card. We moved quickly to correct the problem, within a few hours. During that time, we promptly reacted by extending branch hours at several locations so customers could complete their transactions in person. The next day, we began contacting all effected customers, to apologize for any inconvenience and to offer them each a gesture of our thanks for their patience.

It may appear that the merger's done. But we'll still be at it for another year or two, fixing things and driving forward to build a better bank. In a post-merger environment, the biggest problems tend to be around basic processes. Remember there are a lot of new people in this merged company, and it's the unwritten stuff that kills you - the kind of stuff people just learn through experience. We had a couple hundred process obstacles to overcome when we started; by the end of 2002, we will have implemented more than 150 solutions. We're continuing to eliminate those pesky unwritten rules and awkward processes so everyone's working off the same page. Continuous process improvement is a fact of life at TD Canada Trust for another couple of years - and it's all focused on improving the customer and the employee experience.

So there it is - the story of the two-year merger process in about half an hour. Now for the epilogue to the story, in which I reiterate the key messages:

1. First, the merger - and all that led up to it, occurred during it and will happen going forward because of it - has been about building a better and different bank for our customers, employees and shareholders. So dispel any rumour you've heard about scaling back of hours or things like that. If it's not going to provide a more comfortable, better banking experience, it's just not going to happen. We've actually increased the hours in our branch network from an average of 42.5 per week to 48.4 per week, and it will be about 49 per week by the end of the year. We'll hit 50 hours when the branch mergers are completed. This all excludes our in-store locations, which are typically open 62 hours and 7 days a week.
2. Second, this was a very large, very complex merger, carried out under the most intense of scrutiny. For us, the devil was always in the details. Paying attention to the details and what happens at the time of conversion - and responding to it promptly - was critical to our success.
3. Third, the merger has been successful so far, but it hasn't been without its challenges.
4. And finally, mergers are all about people. We succeeded through hard work by employees and an unwavering focus on our customers and our employees. We met, and will continue to build on, our merger commitments to customers, employees and communities.

Obviously I couldn't and wouldn't speak in this area of the country - where so much of the history of Canada Trust is tied to - without touching on our ongoing commitment to the City of London and surrounding communities.

When the merger was announced, we made a commitment to London. We committed that overall employment in London would be maintained at the August 1999 level by the end of the 3-year integration period. In fact, we're currently over our jobs target and on track to stay there. What's more, when we sold off the Mastercard business - according to the Competition Bureau requirement - and the group pension businesses (which was a strategic decision), we insisted those jobs stay in London. We've also committed to sustaining London as a core business centre within the merged company. We've moved new office functions to London, including some 120 in TD Visa and 160 in e.Bank. London employees are the IT backbone of our EasyLine, EasyWeb and call centre operations. London represents the second largest concentration of employees.

Since the merger was announced, we've committed millions of dollars in charitable donations and sponsorships in the London area. This includes major gifts to the London Health Sciences Centre, St. Joseph's and the University of Western Ontario. Specific to St. Thomas, we've supported the United Way and the YMCA, to name but two.

And finally, as a testament to London's importance to TD Bank Financial Group, I'm pleased to announce that our 2003 annual general meeting of shareholders will take place in London next spring.

Thank you for your time and attention. Personally, while I have more gray hair than when we started the merger, I can tell you that we are committed to building a better - and different - bank for Canadians.