Canadian Banks Seek Safety In Consolidation

The banks have tightened their grip on the domestic financial services market by gobbling up securities firms and trust companies, and expanding into mutual funds and insurance. Far from rejoicing, however, the chairmen of the big commercial banks are worried.

Matthew Barrett, Bank of Montreal chairman, echoed his colleagues when he warned recently that Canadian banks are failing to keep up with their foreign counterparts. ''The distinction between our home turf and foreign turf, between the domestic and international markets, is steadily being eroded,'' Barrett said.

He predicted that the new US ''megabanks'' will sooner rather than later cast their eyes across the border.

 

Non-bank financial institutions, such as Fidelity Investments and GE Capital, already have a strong presence in Canada. ''If Canadians wish to retain a sound, stable and predominantly Canadian-owned banking industry, they have to accept that their big banks are going to become much larger,'' Barrett added.

Canada's banks were for many years in the top rank of global banking. Royal Bank of Canada and Canadian Imperial Bank of Commerce, the two biggest measured by assets, were in the world's top 20 in the 1970s.

RBC, with assets of C$200bn (US$147.6bn), is now down in the 60s. The merger of Chase Manhattan and Chemical Bank in the US has created a group two and a half times this size. Canadian banks were also envied for their stable retail deposits, strong capital base and solid asset quality.

But Michael Goldberg, analyst at James Capel Canada, says they no longer have much to boast about in comparison with US institutions. Few doubt that mergers and acquisitions would enable the banks to achieve substantial economies of scale and to cut costs by trimming their vast branch networks.

The six banks between them have more than 7,000 branches with 175,000 employees. However, Canadian banks have so far been isolated from the wave of mergers in other parts of the world. The Bank Act bars any single shareholder from acquiring more than 10 per cent of a Schedule 1 chartered bank.

No such curbs apply to foreign bank subsidiaries. Furthermore, the banks have long assumed that the political climate rules out further mergers of the kind that created most of them in the first place.

Canadians have an ambivalent attitude towards their banks. They value them as depositories for their savings, which streamed into the banks when a number of trust companies faltered in the early 1990s. But the banks are also viewed as too powerful, too profitable and out of touch with their customers.