Open this photo in gallery: Alberta Premier Danielle Smith told reporters Thursday that National Bank’s $5-billion deal for Canadian Western Bank is a vote of confidence in the bank and in Western CanadaPAUL CHIASSON/THE CANADIAN PRESS
Alberta Premier Danielle Smith says she would prefer that Edmonton-based Canadian Western Bank
remains headquartered in Alberta rather than have its corporate tax base shift to Quebec with a purchase by National Bank of Canada
.
Ms. Smith told reporters Thursday that National Bank’s $5-billion deal for CWB is a vote of confidence in the bank and in Western Canada, and she is counting on the bank to continue its strong support for Alberta energy projects.
“I would far prefer for them to be domiciled in Alberta and paying Alberta corporate income tax than Quebec corporate income tax,” she said, adding that “no one ever likes to see a loss of a corporate headquarters.”
The all-stock deal announced Tuesday values CWB at $5-billion and would expand the Montreal bank’s reach into Alberta and British Columbia – regions where it has been trying to gain a bigger foothold. It would increase National Bank’s lending portfolio outside of Quebec by 37 per cent.
National Bank said that it expects the deal to close by the end of 2025 – a date that lands just after the federal election expected in the fall of that year. The schedule of the closing presents “an interesting time dilemma,” according to Raymond James analyst Stephen Boland.
While the deal for the country’s eighth-largest lender may benefit shareholders, there could be Western institutions and politicians that oppose the acquisition of their biggest regional bank, Mr. Boland said. This could cause Finance Minister Chrystia Freeland, who has the final say on the deal, to delay a decision until after the election.
“The government tends to wait and see in terms of big announcements,” Mr. Boland said in an interview. “Before the election, they won’t want to upset maybe some of the Western stakeholders. Certainly the people of Canadian Western Bank are going to be worried about their jobs, and that’s going to come into play in terms of when this does get approved.”
National Bank plans to increase banking services in Western Canada, maintain CWB’s headquarters in Edmonton, and add two of its directors to the Montreal-based lender’s board, National Bank’s chief executive officer Laurent Ferreira said during a conference call late Tuesday.
The deal would not be the first time politicians entered the debate on bank mergers. Last year, Conservative Leader Pierre Poilievre called for the federal government to reject Royal Bank of Canada’s proposed takeover of HSBC Bank Canada. He said that deal would reduce banking competition at a time when homeowners are struggling with high borrowing costs.
More than two decades ago, the Canadian government made it more difficult to complete bank acquisitions. In the late 1990s, then-finance minister Paul Martin squashed the proposed mergers of Royal Bank of Canada and Bank of Montreal, and Canadian Imperial Bank of Commerce and Toronto-Dominion Bank.
Those attempted takeovers would have consolidated most of Canada’s five biggest banks, significantly reshaping the country’s financial sector. In the case of National Bank and CWB, the deal brings together two regional banks that operate in different parts of the country and have a sliver of the market capitalization of their larger peers.
“For many years, this transaction always seemed a logical fit,” Mr. Boland said in a note to clients, adding that he does not expect competition concerns. “Each was underrepresented outside their home provincial geographies and surrounding provinces.”
While this would remove one more institution from Canada’s already small pool of regional and challenger banks, which include EQ Bank
and Laurentian Bank of Canada
, it would create a more dominant sixth-place competitor to the big banks.
“By combining, it creates more competition,” John Turley-Ewart, regulatory and risk management consultant and Canadian banking historian, said in an interview. “The opportunity to move from having five big banks to really having six big banks in Canada is a good thing for the country.”
The takeover requires regulatory approval from the Office of the Superintendent of Financial Institutions, the Competition Bureau and the Finance Minister.
During a conference call Tuesday, Mr. Ferreira said that the two banks have “little to no” existing overlap between their key businesses.
“By combining the successful banks, we will create a stronger full-service coast-to-coast competitor, providing more choices to individuals, entrepreneurs and businesses across the country,” Mr. Ferreira said.
National Bank spokesperson Debby Cordeiro said in an e-mail statement that the bank believes the deal meets all the requirements for regulatory approval and poses no competition concerns.
While National Bank’s share price has soared in recent years, CWB has lagged its peers. Before Tuesday’s announcement, its share price was down 16 per cent this year, underperforming the rest of its competitors.
CWB’s stock soared 68 per cent to close at $41.89 on Wednesday in Toronto, but remained below National Bank’s offer of $52.24 per share. National Bank’s share price slumped 5.9 per cent.
CWB has grappled with low loan growth and elevated loan losses as high interest rates dampen demand for borrowing and increase the risk of defaults.
During its second-quarter results for the period ended April 30, CWB lowered its 2024 guidance for earnings per share to a range of $3.50 to $3.60, signalling stagnant growth from its earnings of $3.58 in 2023 and prior forecast of low- to mid-single-digit growth for this year.
CWB said that it expects lower-than-expected loan growth and a waning revenue outlook to temper profit this year. Many of the bigger banks have also been focused on growing in Western Canada, increasing competition pressure for CWB.
But executives also indicated that loan growth should start improving in the second half of the year when the Bank of Canada is expected to continue lowering interest rates.
Mr. Ferreira said that CWB, which is largely focused on commercial banking, will benefit from National Bank’s financial markets business, where it believes it can cross-sell products between the divisions.
“The integrated platform will enable the extension of full-service banking relationships through CWB, deep customer relationships across a number of priority industries,” Mr. Ferreira said. “This includes deploying National Bank’s digital capabilities for our clients, a full service offering for cash management and various solutions from our financial markets business such as risk management and advisory services.”