Canadian Western Bank (CWB) photographed from a running streetcar in the financial district in old Toronto on June 6, 2024.Abhijit Alka Anil/The Globe and Mail
National Bank of Canada chief executive officer Laurent Ferreira has accelerated the Montreal lender’s reach into the Western provinces, taking over Canadian Western Bank and combining two financial institutions that have always been in the “fight for business.”
On Monday, Canada’s sixth-largest lender closed its deal to take over the country’s ninth-biggest bank, allowing National Bank to significantly expand its footprint in Alberta and British Columbia.
Prior to the deal, 80 per cent of National Bank’s personal and commercial business was in Quebec, with 20 per cent outside of the province. By scooping up CWB, 40 per cent of its business now comes from outside Quebec, according to Mr. Ferreira.
“We’ve always had to fight for business at National Bank, and CWB is the same story,” Mr. Ferreira said in an interview by phone from Alberta.
The acquisition is “perfectly aligned with what we’re good at, which is to fund businesses and work with entrepreneurs and family-owned businesses. This is the DNA of National Bank of Canada, and CWB has built a fantastic franchise here out West, and it fits like a glove.”
Competing in Canada’s banking market typically involves attracting customers from rivals, as takeover opportunities were rare over the past few decades. Canada’s financial sector is dominated by six major banks which hold most of the country’s deposits and loans.
National Bank’s push into the Western provinces has been key part of its growth strategy. In buying CWB, the Montreal-based lender gains a customer portfolio with $37-billion in loans across 65,000 customers and 39 branches in Western Canada and Ontario.
Some analysts have questioned whether the two banks were an effective cultural fit since one is based in Quebec and the other in Alberta.
But National Bank is no stranger to operating businesses in markets very different from its own. Its specialty finance company Credigy is based in Atlanta, and its commercial lender ABA Bank is based in Cambodia. But those units are largely stand-alone operations, whereas CWB is joining National Bank’s Canadian business.
Mr. Ferreira said culture was one of the most important factors in deciding to pursue CWB, and that language barriers have not hindered National Bank’s ability to expand its capital markets and wealth businesses outside of Quebec.
“We’ve been established [in Alberta] since 1983 and we have a very strong presence in the oil and gas business,” Mr. Ferreira said. “The cultural similarities are strong because of what we believe in, in terms of what the most important values are, how we manage talent, our business model, and how we do things differently versus other institutions.”
National Bank is also increasing its commercial and wealth businesses, with niches in equipment financing, trust services and wealth management. More than $30-billion of CWB’s loan book is in commercial, while the other $7-billion is in personal loans and mortgages.
CWB has been widening its presence in Ontario, particularly in wealth and the middle market commercial banking segment, which includes business clients that generate between $5-million and $100-million in revenue.
But in recent quarters, CWB has struggled with climbing provisions for credit losses – reserves that banks set aside to cover loans that could default. The bank reported lower-than-expected fourth-quarter profit in December, in part because it set aside $40-million in provisions – nearly double the amount expected by analysts.
CWB said that it expected provisions to remain elevated. Many of Canada’s largest lenders have also increased provisions as consumers and businesses face higher borrowing costs.
“We are in a credit cycle after two years of restrictive monetary policy, and when we announced the deal, we took a credit provision of $150-million,” Mr. Ferreira said. “This is absolutely normal, when you are servicing corporate clients and commercial clients and you have a credit cycle, you will go through a period of elevated losses on the credit side.”
CWB had also delayed its quarterly results by nearly two weeks after it was notified of a legal claim in a subsidiary. CWB said that the claim did not affect its financial statements. On Monday, Mr. Ferreira said the issue was isolated and he is not concerned about the matter having a larger impact.
Over the next five months, National Bank will move Canadian Western clients onto its own platforms in incremental batches. CWB branches will also be rebranded under National Bank.
By streamlining the two lenders’ operations and technology platforms, National Bank expects to save $270-million annually by the third year after the transaction closes.
While there is some overlap in the functions and roles of CWB and National Bank’s employees, the lender will work with affected staff to find new opportunities internally, Mr. Ferreira said. National Bank opened a call centre in Edmonton, and plans to maintain executive and operational leaders in the city.