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Banks face new challenges

Change is afoot at the big Canadian banks, as some of its top leaders near retirement age just as the economy runs into fresh challenges with the pace of growth.

Last week, TD Bank chief executive Ed Clark disclosed a succession plan that will lead to his exit in November 2014, but his move also raises questions about how the other big banks are planning for their next generation of leaders.

"Succession is always of interest, especially to shareholders," said Dan Werner, Canadian bank analyst at Morningstar based in Chicago.

"You're not going to see the growth that you saw five or six years ago," he added.

Over the past few years, the Canadian banking sector has thrived on its lack of surprises, having endured the financial crisis without suffering any major stumbles and keeping its dividends reliable for investors.

Those days could be over as expectations of slower growth overtake Canadian retail banking and questions arise over where each bank will choose to turn in an attempt to drive its profits higher.

Last week, Clark told TD's annual meeting that slower growth in the Canadian economy will pressure the sector and make it "tougher'' for the bank to meet its earnings targets of seven to 10 per cent in 2013.

While the other banks haven't shared their specific outlooks yet, the list of headwinds runs long, from high consumer debt to weakness in the housing market and a stubborn recovery in the U.S. economy.

"You've got natural slowing of growth in your core business, you've got a highly leveraged customer ... and you've got very few switches to pull to allocate capital on a cost-effective basis and feel comfortable it will return," said Stonecap Securities analyst Brad Smith.

"Those are pretty big challenges for incoming CEOs."



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