Mortgage broker clients could have another bank to choose from in a few years.
Street Capital, the no. 4 lender in the broker channel by market share, has announced that it’s applying for a bank licence.
“We are confident we can continue to grow our mortgage business under our current model,” President Paul Grewal tells CMT. But a bank licence would give Street “greater flexibility to offer a broader product base,” allowing it to differentiate itself in an increasingly competitive market.
“If approved as a bank, we would look to service a wider group of consumers by offering a broader range of financial products,” said Grewal.
“…We believe that there is a large group of customers consisting of new Canadians, younger Canadians and self-employed Canadians that are currently under-serviced by larger financial institutions.”
The company would operate under the name Street Capital Bank of Canada.
Grewal said it’s too early to know what products and services Street would offer as a bank, but personal lines of credit, personal loans, credits cards are all on the table. Residential mortgages would remain its mainstay.
Since inception in 2008, Street’s management has built it up from nothing to the fourth biggest broker market lender, with 7.7% market share as of second quarter. As of June 30, 2012 it had $9.5 billion in mortgages under administration.
Despite its success, a bank licence comes with a whole new set of challenges:
Regulation is burdensome and costly – to put it lightly
There is ferocious competition for deposits – forcing new entrants to pay premium rates and compressing margins on prime mortgage lending
Capital requirements are high and getting higher (Stricter Basel III capital rules start phasing in this January).
But Street has a model it thinks will work, and its management has a strong banking pedigree. CEO Ed Gettings, President Paul Grewal and CFO/CRO Lazaro DaRocha were all high-level CIBC executives.
To get its charter, Street’s banking application requires approvals from the Office of the Superintendent of Financial Institutions (OSFI) and the Minister of Finance. It’s a process that could likely take “at least two years,” says the company.
If approved, Street Capital Bank of Canada will stay true to its broker roots. “We have consistently supported the mortgage broker channel as we believe brokers provide sound impartial advice to clients,” says Grewal. “We will continue to be broker focused and broker loyal.”
Street Capital Financial Corp. is a subsidiary of Counsel Corp. (TSX:CXS), which acquired it on May 31, 2011.