More on the B2B & AGF Merger

B2B-Trust-AGF-TrustB2B Trust announced last Wednesday that it’s buying rival AGF Trust for $415 million.

The deal looks to be a mutual win. B2B gets a synergistic growth opportunity and AGF Management (AGF Trust’s parent) gets to jettison a non-core business.

Mortages are AGF Trust’s main business, so we were anxious to ask both companies what this news means for borrowers and brokers.

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 First: A look at AGF’s mortgage ops:

  • AGF’s mortgage business has geared up in the last year. In the first quarter it had $142.7 million in originations, up 339% versus Q1 2011.
  • It’s now got a mortgage portfolio of $1.1 billion (as of Feb. 29)
  • 54% of its mortgages are insured.
  • AGF’s mortgage originations come primarily from its VERICO partnership, which started in 2011.
  • AGF says it is the only deposit-taking institution that has a trailer fee broker compensation program, which many brokers prefer.
  • “The mortgage businesses (of B2B and AGF) are slightly different,” AGF Trust President & CEO Mario Causarano told CMT, adding that, “B2B Trust is not in the alternative lending space.”
  • Non-prime business attracted unwanted attention during the financial crisis, said GMP Securities analyst Stephen Boland, but he notes, “The losses never materialized and the Trust was consistently profitable.”

As to why AGF sold its trust company to B2B:

  • On a conference call, AGF Management Chairman/CEO Blake Goldring explained it simply: “Opportunities are greater in our core investment management business.”
  • Goldring also expressed concern about the “challenging regulatory environment” surrounding trust operations and mortgage lending nowadays.
  • Paul Holden, a financial services analyst with CIBC World Markets, said: “(AGF Trust) generated a decent return but owning the trust was not well appreciated by the market.”

As to why B2B bought AGF Trust:

  • Laurentian Bank Chief Executive Rejean Robitaille explained during a conference call: “AGF Trust will be beneficial to the bank’s performance as it increases our scale of operations and optimizes our efficiency, (and) increases our net interest income and margins.”

Regarding changes to come:

  • Existing AGF and B2B (Laurentian Bank) borrowers should not be adversely impacted by this announcement.
  • “There are no immediate plans to change B2B Trust’s or AGF Trust’s existing product offerings or policies,” B2B Trust President & CEO Francois Desjardins told us.
  • “A detailed integration plan will be developed that will evaluate all facets of the acquisition. That will include a detailed assessment of the product and service offerings. We aim to retain the best of both companies’ product offerings.”
  • Desjardins also said B2B’s goal is “to eliminate any product redundancies.”
  • AGF’s latest financials state that it hopes to expand its co-branded mortgage (which it offers through the VERICO broker network) “to other partners in 2012.”
  • AGF also has a non-prime product called Mortgageability that it plans to roll out to a range of brokers this year in Ontario, says EVP Moe Forget. (This product line has been around since 2009, but was rebranded in 2011. Verico brokers are currently the primary originators of this product.)

On AGF’s non-prime products:

  • Desjardins says B2B Trust will evaluate AGF’s non-prime product suites upon closing the transaction.
  • Forget says the features of the Mortgageability product line may be modified depending on what OSFI’s upcoming mortgage guidelines require.

Regarding timeframes:

  • B2B Trust is becoming B2B Bank on July 7, 2012, pending regulatory approval.
  • The B2B / AGF merger is expected to close in August 2012.
  • “Integration of the two (mortgage) operations is not anticipated until Fall 2013,” said Causarano.

Rob McLister, CMT

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