Takeover or rescue? Canadian banks assess big buyout by Britons
There is one less Canadian chartered bank, following a major takeover/rescue by a British bank. The action has protection-conscious federal politicians worrying about foreign incursions into domestic banking. Lloyds Canada, a subsidiary of Lloyds Bank, has bought Continental Bank, the seventh-largest bank in Canada, for $200 million (Canadian). It makes Lloyds the largest foreign bank operating in Canada.
``Continental Bank has been pursuing a strategy that fits perfectly with our thinking,'' said Lloyds chairman, Sir Jeremy Morse, at a Toronto news conference. ``We have particular ambitions in the area of middle-market corporate banking and the provision of personal executive banking services where we have experience.''
The purchase is as much a rescue bid as a takeover. Continental had been facing a crisis in confidence after the failure of two smaller banks last fall. Retail depositors were the first to withdraw money from Continental, followed by a flight of institutional deposits when the bank's bond rating was lowered last spring.
The Bank of Canada, the country's central bank, and equivalent to the Federal Reserve System in the United States, has been supporting Continental with $2.4 billion in special loans designed to stave off another embarrassing bank failure. Analysts say that the loan was not enough and that Continental was not attracting sufficient deposits.
The takeover should change that. ``They [institutional depositors] will probably come back a lot faster than we expect,'' said Continental chairman David Lewis. ``We're expecting it'll be a matter of weeks rather than months.''
Although the seventh largest, Continental is actually a small bank. The ``Big Five'' banks have about 84 percent of the banking business in Canada. For example, the Canadian Imperial Bank of Commerce, the third largest, has assets of $79 billion and 1,560 branches in Canada; Continental has assets of $6 billion and 55 branches.
Continental will become Lloyds Bank Canada and it will change from a Schedule ``A'' bank to a Schedule ``B,'' a category created in 1980 to allow foreign banks to operate in Canada. ``A'' banks are Canadian-owned, ``B'' banks foreign. While ``A's'' have no restrictions on asset growth, ``B's'' are restricted to no more than 16 percent of total Canadian banking assets.
That constraint should not affect the new Lloyds operation, as foreign bank assets are running at 8.8 percent of the total, and even with the addition of Continental, that will increase to only 10.5 percent.
Citibank Canada is now the largest foreign bank, with assets of $4.6 billion and 10 branches across the country. With the departure of Continental there will be 9 Canadian or ``A'' banks and 55 foreign, or ``B,'' banks. Lloyds Canada was 47th on the ``B'' list; it will now be No. 1, and it will have the largest branch network by far. Just a year ago there were 14 Canadian ``A'' banks, but failures and mergers have taken their toll.
This has nationalistic politicians in Ottawa hopping. Michael Cassidy, financial critic of the socialist New Democratic Party, says that by allowing the Lloyds takeover of Continental, the government has effectively deregulated the banking system.
Even members of the ruling Progressive Conservative Party who sit on the Finance Committee of the House of Commons have been critical. Committee chairman Donald Blenkarn says there is concern over excessive concentration of ownership if Lloyds Canada gets bigger.
Lloyds Bank International, the parent of Lloyds Canada, is the ninth-largest bank in the world, with assets of $86.3 billion and operations in 46 countries.
The list of ``A'' banks could shrink even further. The Bank of British Columbia, a small regionally based bank, has been seen withdrawals by anxious depositors, much like Continental. It is also known to be looking for a merger partner.
Michael Cassidy of the NDP is not happy. ``Now every Schedule ``B'' in the country will be looking at the Bank of British Columbia as a quick entry into the Schedule ``A'' system.''