Not surprisingly, bank mergers were the hot topic today at RBC Capital Markets Canadian Financial Services CEO Conference in Toronto.
A panel consisting of Royal Bank CEO, Gord Nixon, Bank of Montreal’s chief, Tony Comper, and CIBC CEO, John Hunkin, discussed the issue of bank mergers, indicating frustration with the current ownership restrictions and the lack of clarity in the merger process.
Asked about the wisdom of so-called “bancassurance” deals (bank-insurer mergers), the three bank chiefs agreed that the market should be fundamentally able to determine whether such deals make sense. BMO’s Comper was most negative about the wisdom of such deals, saying that with current restrictions on banks selling insurance through their branches, he doesn’t see these deals making that much economic sense for BMO.
However, Nixon and Hunkin were both a bit more bullish on the idea. Nixon noted that RBC is already a big player in the insurance business and that the bank is pleased with this strategy so far, and optimistic for its’ success in the future. The challenge to doing a big cross-industry merger, from RBC’s point of view, would be price. Nixon said that it would be hard to convince RBC to pay much of a premium, or a load of goodwill.
Hunkin said that CIBC likes the possibility of cross-pillar mergers because it would offer both scale and diversity for the balance sheet, particularly allowing the bank to get involved in foreign jurisdictions. The key issues for playing overseas are scale and local management expertise, and so mergers with insurers could offer both of these advantages.
As for the bank merger process and the existing foreign ownership restrictions, the three CEOS agreed that the ownership restrictions aren’t necessary, and that they would prefer a freer market approach. Nixon suggested that if the government allowed mergers, restrictions on foreign ownership wouldn’t be needed..
The trio continued to press the case for fewer, but bigger, financial firms.
Comper said that there’s risk to having financial institutions that are too small, just as there’s risk in having a financial industry that’s too concentrated.
Hunkin said that the country has yet to decide what sort of financial industry it wants — a more concentrated, globally competitive one, with more foreign players; or, the current situation, with an increasingly marginalized, but more populous industry.
Unfortunately, from the bank CEOs’ perspective, the current merger approval process is inherently political. The chiefs expressed frustration with the current lack of clarity in the process, and the 60-day window for bank merger proposals that has been established for the fall.
Nixon said that the 60-day window is clumsy, but that it does prevent a situation where a proposed deal’s approval is disrupted by the announcement of a second deal six months after the initial deal.
Hunkin expressed frustration with the approval process overall, suggesting that he believes only one deal will be allowed between the banks. “It seems like a pretty disruptive thing to go through with a low probability of success,” he said. Although the others were more optimistic that more than one deal may be allowed.
One company that has experienced success though mergers is
Sun Life Financial Inc.
James Prieur, president and CEO of Sun Life, told the CEO conference that the insurer is “poised for profitable growth in Canada over the next several years” following the successful integration of Clarica operations,
He said integration achieved all of the financial objectives for cost savings and that the earnings per share accretion target for 2003 of 20¢ had been exceeded.
Prieur told the conference “our stake in CI Funds gives us a strategic holding in a leader in the Canadian mutual fund industry. With industry-leading distribution capabilities, outstanding asset management and an efficient cost structure, we view CI as the strongest wealth management platform in Canada, and our 34% interest will allow us to participate in their growth in a meaningful way”.
Bank CEOs frustrated with merger process
Opinions mixed over possible bank, insurance company mergers
- By: James Langton
- January 20, 2004 January 20, 2004
- 12:10