Vancouver city sav-ings Credit Union has sold off what it considers to be non-core parts of its business over the past several months in order to raise capital to invest in two key growth areas: wealth-management products and services, and commercial banking for small and medium-sized businesses.

“Our ability to meet [members’] full financial needs, while paying attention to what’s important to them in terms of family and community, hasn’t kept pace with the market,” says Tamara Vrooman, CEO of Vancity, the largest credit union in Canada outside Quebec. “We now have an opportunity to grow and change to meet the changing needs of our members.”

Vancity is keeping its specific plans for growth in wealth management and commercial banking under wraps for the time being, but expects to roll out a three-year plan at the beginning of 2010.

“The key changes will come in our product and business development and in the service development for our representatives in those two [business] areas,” Vrooman says. “And you’ll start to see that early next year.”

Vancity’s first major sale came in July, when the credit union sold Vancity Insurance Services Ltd. , its home, automobile, travel and business insurance business, to Guelph, Ont.-based insurer Co-operators Group Ltd.

Then, in August, Vancity sold the retail mortgage and loan business of its 12-year-old online bank subsidiary, Citizens Bank of Canada, to Toronto-Dominion Bank and decided to discontinue Citizens Bank’s other retail banking operations, including deposit-taking.

Vancity will keep running Citizens Bank as a commercial-only operation.

STRATEGIC PLANS

Finally, in October, Vancity sold Inhance Investment Management Inc. , its socially responsible investing mutual fund business, to Toronto-based IA Clarington Investments Inc., while, at the same time, entering into a partnership to distribute IA Clarington funds through Vancity branches.

Although Vancity has not released figures from any of the sales of the divested business lines, the credit union now has enough capital to implement its strategic plans, Vrooman says, adding it doesn’t have any immediate plans for further divestitures.

“It would have taken us from five to 10 years to generate the same amount of capital from normal operations as we did from the sales,” Vrooman says. “Now, we’re back in growth mode, but in a way that’s consistent with our values and with meeting our members’ needs.”

Exiting the non-core businesses should help Vancity achieve its strategic goals, says an analyst who tracks the credit union.

“The non-core areas took management’s focus away from core areas,” says Robert Long, a financial institutions analyst with Toronto-based credit rating agency DBRS Ltd., “and the capital tied up in those businesses can now be put to better use.”

Vancity’s decision to sell the three subsidiaries came as a result of a strategic review of its operations undertaken in 2008 to see whether those lines of business were delivering a benefit to members and whether they generated returns that helped the bottom line. The credit union also looked at the areas in which it felt it was underserving members, and decided it needed to beef up its wealth-management and commercial-banking services.

“Those are the two goals, but always we want to do that with a Vancity flavour,” Vrooman says, “social finance on the business side and SRI on the investment side.”

In selling the insurance business, Vrooman says, Vancity exited a business line that it felt other firms could do just as well or better.

“Home and auto is a transactional business, largely, and it was ancillary to our core focus,” she says. “Frankly, we had gotten to a point in that business at which we had to invest significantly in it or take another path.”

Co-operators has taken over all the 17 VISL branches, including all staff, in Greater Vancouver and Victoria.

However, Vancity did keep its life and creditor insurance business. “That business,” Vrooman says, “will be a key part of our plans to grow wealth management.”

In selling Citizens Bank’s retail mortgage and loan division, Vancity has finally raised the white flag on what had become a losing proposition, Vrooman suggests: “We were the first online bank in Canada. But very, very quickly, other providers came to dominate that space at a size and scale that we simply couldn’t compete with. We’re large for a credit union, but we’re not as large as ING Direct, or any of the online offerings of the Big Five banks.”

@page_break@BANK NOT PERFORMING

Vancity’s sale of Citizens Bank makes best use of the credit union’s capital, says Long: “The bank had not been performing particularly well recently, and had never been very profitable.”

Citizens Bank had $64 million in Tier 1 capital and $96 million in total capital as of June 30, according to Long in a DBRS report issued in early September. Most of that can now be freed up for Vancity to use on other strategies.

However, Vancity will keep running Citizens Bank, through which it will continue to offer its Visa credit card business, commercial real estate lending and foreign-exchange services for businesses.

“Foreign exchange has been very successful for us, and a very important part of the services that we offer to small and medium-sized business members,” Vrooman says. “As we want to grow that sector, that’ll continue to be a key part of the offering for us.”

Although Jason Farris, who has been CEO of Citizens Bank since 2006, says he was offered an opportunity to keep running the bank, he has decided to leave the bank once the retail operations are wound up — likely, by January, Vrooman says: “He came to Citizens Bank with a real passion for the Internet and the retail space, and he’d like to take that passion to some other venture.”

The deal struck with IA Claring-ton will see the Inhance funds merged with new SRI funds from IA Clarington and with two existing funds offered by that firm.

Meanwhile, Inhance fund man-agers will stay with Vancity Investment Management Inc. and serve as subadvisors to the new IA Clarington SRI funds. IE