CIBC’s Plan to Sell Mortgage Centre

Mortgage-Centre-Mortgage-BrokersThe talk of last week’s CAAMP/Mortgage Brokers Association of BC conference in Vancouver was CIBC’s potential sale of Mortgage Centre Canada (MCC), its mortgage broker franchisor.

Such a sale, if closed, would mark CIBC’s total exit from the outside broker market. It shuttered its broker lending arm, FirstLine, last year.

Industry insiders have heard for weeks that CIBC is trying to divest of MCC. But few significant details have leaked out to the masses. Here’s what we’ve been able to piece together thus far. (None of this should be considered fact unless confirmed by official sources.)

The two companies rumoured to be in the lead to buy MCC are Radius Financial (Pacific Mortgage Group) and Dominion Lending Centres. Neither company could confirm or deny their interest, which makes sense if they are (or have been) negotiating with CIBC.

The price we’re hearing is somewhere around $4 million or above. The company was reportedly put on the auction block in the spring and bids were then solicited from interested parties. But we’ve also seen information that suggests MCC was being shopped around with CIBC’s FirstLine sale back in 2012.

CIBC-BankAn MCC sale would be in keeping with CIBC’s plan to generate more profitable mortgage business through its in-house reps. It’s a strategy the bank believes will create “deeper client relationships” with its customers. Lack thereof was a main reason why CIBC abandoned FirstLine.

We’ve heard speculation that CIBC has been working to finalize terms with one bidder. If the FirstLine deal was any indication, those closing negotiations could potentially take a while.

What remains to be seen is whether the buying brokerage will be allowed to keep referring deals to CIBC. MCC franchisees are currently the only external brokers in the country who can. (Agents from Home Loans Canada, CIBC’s internal brokerage subsidiary, can also send deals to CIBC.). If we had to speculate we’d guess the answer is no, given CIBC’s clear intention to exit the broker market.

In reality, only a tiny percentage of broker business ever went to CIBC (not including FirstLine). But having the option to sell CIBC products was nonetheless an attractive edge for MCC brokers.

CIBC-MortgagesOne thing is for certain. If/when CIBC gets rid of MCC, competing brokerages will put on a full court press to sign up as many MCC brokers as they can. We have no doubt that MCC would lose a material number of agents in that scenario.

That said, most MCC brokers won’t care that much unless the buyer adversely changes the economics of their deals. Presumably, however, the new buyer would be looking for growth by investing in MCC, and want to keep as many brokers happy as possible.

As for a purchaser’s logic in buying MCC, the added bodies would give it greater broker revenue and economies of scale. That implies greater leverage with suppliers. MCC reportedly also has advantageous contracts with industry suppliers that a buyer may be able to leverage. And if Radius were a buyer, that would drive more deals to its in-house lender.

But there will certainly be some MCC brokers looking for new homes if CIBC comes out of the fold. Some MCC brokers reportedly have an “out clause” that lets them leave if MCC ownership changes hands. We hear that one or more big franchises have already exercised such clauses in response to these developments.

As a result, MCC’s buyer may demand a provision that ties the purchase price to the number of brokers who remain.

Sidebar: Brokerage consolidation is very much a trend and we’ll definitely hear of more sales as time goes on. Here was our take on this topic 15 months ago:
Have Brokerage Valuations Peaked?

Rob McLister, CMT

  1. For $4 Million why don’t the big brokerages in the MCC system just chip in and buy themselves? $2 Million cash $2 Million Lent. Heck, it’s the price of 3 Vancouver houses and you own yourself.

  2. What mortgage products does CIBC have that are worth selling? Brokers have better products at better rates anyway.

  3. Good Point Ron. All franchise owners run their own show now and being an owner would bring the franchise group closer together.

  4. Hi Marie,
    HLC is kind of a quasi-broker, being a subsidiary of CIBC Mortgages. It has employees as agents, the agents process branch referrals (declines) and they don’t submit to all lenders, like a typical broker. For example, (as far as I know), HLC agents don’t generally send to some of the largest broker lenders like TD, Scotia, National Bank and others.

  5. Thanks Rob, but don’t they also take in external business from their realtors and referral sources, they just can’t submit to another bank, which lately is few and far between. To me they are like a mix between a mortgage specialist and the Royals AMS channel. So CIBC must be benefiting from the broker market still?

  6. Steve, I love that comment, really I do, it illustrates so much. Why would you want to buy a network? They don’t make any money in this market? Oh, and by the way, because the market is down and commissions are being squeezed, I need the brokerage to give more services and take less split. Welcome to 2013.

  7. $4 million for what?
    1) A client base that CIBC has had full access to, & has the money, the call centers & other resources,to solicit that base until the end of time.
    2)A name? My dog has one too, and he is likely to keep his longer than MCC.
    3)A number of brokerages & agents who may jump ship if they don’t get a what they want?
    Don’t get me wrong there are great brokerages, brokers & agents in the MCC network…but $4 million???
    ‘splain to me Lucy what I don’t see or understand.

  8. The Purchase price is well over $6.5 Million, the final WINNER was DLC. The deal is expected to be announced in next few days!

  9. Anyone who would pay $6.5 million for a business that collects royalties from brokers should have their blood tested for _____.

  10. @neil22 The two big networks in Canada make a decent profit, in fact, they are owned by their founders and I think those gentlemen are happy with the results. There are headwinds in the future but from inception to now both DLC and Verico have grown very quickly and are profitable for the last several years.
    MCC has actually been on a good run lately, they picked up the biggest independent brokerage in Ontario, their management has done a great job in very difficult circumstances in the aftermath of Firstline.
    I had heard that DLC was on the inside track as well.

  11. Here is another thought, Did Gary purchase MCC with the DLC advertizing money of 195 ish per month that all DLC brokers pay? That is supposed to go to advertizing DLC I think and I have heard some pretty loud grumbling that some are mad that he is using (or they believe) he is using those funds just to build his side of the business. Just a thought but wondering if some DLC’s will be upset by this.

  12. The cash-back offers are attractive with discretionary pricing in terms of the “real” rate. Obviously the cash-back amount is subject to a claw-back if the customer breaks early so this strategy is not for everyone.

  13. In my mind, MCC has already lost some of it’s value. Some of the bigger players like Calum Ross have already left MCC and now more will be exiting.
    Not worth it in my mind, not sure what DLC is thinking and not sure what MCC agents will think about the 5% DLC royalty and misc. monthly fees, which they are currently not paying at MCC.

  14. So tired of the how the ‘big boys’ are royally screwing the Broker Channel!
    What was MCC doing all of this time?…the hush hush attitude & crappy conferences++ are a HUGE slap in the face! Ooh ya where’s the new website MCC? Between the Government, the Lenders & Broker Houses I’m not sure who is screwing up more…TBC!

  15. MCC – Respected network of quality owners and top producing brokers.
    DLC – Cutting edge of our industry in consumer awareness, tools, support and culture.
    Seems like a great fit if everyone keeps an open mind. There’s a reason so many quality MCC franchises left to join DLC the last few years. I was one them. DLC became what we wanted Mortgage Centre to be. Being a nay-sayer in the past, I admit to eating humble pie and recognizing the value DLC offers. Gary has tremendous vision, and he has delivered on everything he’s promised me. I hope that gives some comfort to my friends at MCC.

  16. mpatel,
    In situtions like the mergers and takeovers, all agents are asked to migrate to the mothership’s systemswith in a year or 18 months.
    Unless DCL want to run to two systems sidebyside, I can see all the agents coming under one system within a reasonable time.
    Those who place a major part of their business with CIBC may want to try and join up with HLC.

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