Canada’s Lesser-Known Bank Sets Ambitious Goals

TORONTO — Surprisingly, Canada’s seventh-largest bank is one that many Canadians might not recognize. It operates without physical branches, credit cards, or traditional wealth management services.

Chadwick Westlake, who became CEO of EQ Bank last August, has already embarked on an ambitious plan, announcing a noteworthy deal to acquire PC Financial in December. He believes that significant changes are on the horizon.

“We will be famous by the end of this year,” he stated confidently.

This acquisition of the PC Mastercard portfolio and associated accounts, in partnership with Loblaw Cos. Ltd. and its PC Optimum loyalty program, is expected to boost EQ Bank’s presence across numerous grocery stores and ATMs throughout the country.

When Westlake stepped into his role, he knew elevating the bank’s visibility, which currently 80 to 90 percent of Canadians are unaware of, was essential.

“This was a top priority for me, as I believe this is crucial for establishing a significant challenger in Canada. This sort of agreement is unprecedented,” he shared during an interview.

The forthcoming deal, set to finalize this year, aims to heighten competition against the big six banks that dominate the Canadian banking landscape. It marks a significant shift, but it’s far from the only change taking place at EQ Bank.

Westlake’s leadership change came after the unexpected passing of former CEO Andrew Moore, who led for 18 years. Along with this transition, the bank has made key new hires like Anirisa Sainani, who stepped in as chief financial officer last August, and it has moved into a brand-new headquarters.

However, the anticipated deal with PC Financial is what many Canadians are particularly interested in. EQ Bank’s distinctive yellow branding will soon be visible on store shelves, tackling a significant hurdle for digital finance companies vying for market share against established competitors.

Westlake noted, “One of the advantages of this is it fosters trust, and trust is critical in banking.” He added that digital-only banks might eventually face limitations, especially if Canadians are generally content with their current banking options.

“In a way, that’s held us back. We need a more realistic perspective,” he expressed.

Interestingly, he remarked, “People still love people.” Despite this, it’s unlikely that EQ Bank will establish branches on every street corner, as the focus remains on cost and efficiency. Growth will likely stem from expanding the grocery store’s 180 pavilions.

“It’s straightforward since all the features are accessible without the need for physical cash or a safe,” he mentioned.

Westlake has previously worked to streamline banking operations at other institutions, and last fall, he implemented layoffs that reduced about 8% of the bank’s workforce as costs gradually rose.

“We’ve made some significant and tough decisions, and it’s vital that we function very efficiently,” he noted.

In addition to enhancing operational efficiency, EQB, the parent company, is working to minimize loan losses that have increased amidst economic uncertainty. Compared to the Big Six banks, the bank possesses a relatively high exposure to the mortgage market, also focusing on alternative mortgages for customers like the self-employed who might struggle with traditional loans.

In the last quarter, EQB experienced a rise in related loans, leading to increased provisions for credit losses. Analyst Mike Rizvanovich from Scotiabank observed that EQB’s loan portfolio has shown “significant credit deterioration.”

He pointed out that while the deal with PC Financial may diversify the bank’s revenue, it also raises some concerns; for instance, the credit card portfolio tends to have high loss rates compared to those from larger banks. Westlake countered this notion by arguing that PC Financial’s loss rate is comparable to that of the big banks, asserting that alternative mortgage clients tend to be more resilient during downturns.

Some analysts are optimistic, including BMO’s Etienne Ricard, who raised EQB’s price target from $108 to $130, believing the deal will bolster the bank’s strategy, diversify its offerings, and allow for cross-selling opportunities. Yet, risks remain, particularly since PC trading does not offer features like asset management or stock trading services, which represent major gaps for EQ Bank that Westlake has stated they are keen to address, potentially through acquisitions or partnerships.

“It’s akin to PC trading, but honestly, you can’t build it,” he reflected.

When everything is aligned, EQ Bank hopes to possess the essential product range required for effective competition. Meanwhile, other online banks are also rapidly evolving; for instance, Wealthsimple introduced its first credit card last year and QuestTrade Financial Group obtained its banking license last October, indicating their expansion intentions.

Westlake commented that even with all these developments, they still represent a small fraction of the Big Six, indicating ample growth potential for all parties involved.

Additionally, he noted that substantial changes are beginning to emerge at EQ Bank, which he regards as a part of a broader shift in what he perceives as the most concentrated banking market globally, especially as the federal government advocates for open banking and other competitive reforms.

“We are truly on the brink of making a significant change in the banking landscape of this country,” he concluded.