The deal, announced a few hours ago, is subject to regulatory approvals and expected to close in September 2013. After completion, Canadian First and MonCana will combine into a new bank brand (the name to be announced later).
Canadian First is building a network of locally-owned, “one-stop” retail locations. They’ll sell mortgages, deposits, insurance, investments and wealth management services, and then tie them all together into one financial plan for the client.
“We do believe that this transaction accelerates our ability to build out our retail network by a couple of years,” says Peter Vukanovich, President and CEO, Canadian First Financial. “It also accelerates our profitability and we expect to be profitable by the end of next year.”
“MonCana brings its relationships with brokers, Canada Mortgage and Housing Corporation (CMHC), Canada Deposit Insurance Corporation (CDIC), Office of the Superintendents of Financial Institutions (OSFI), funders and treasury people,” Vukanovich adds. “It’s not easy to build that on your own…We did a build vs. buy analysis and the overwhelming result was that it would be lower expense and lower risk to do this transaction than to build [the infrastructure and relationships] on our own.”
Canadian First and MonCana have been working on the deal for a few months now. OSFI gives newly incorporated banks just 12 months to get up and running so time was of the essence. With this acquisition, subject to regulatory approval, Canadian First gets a turnkey operating bank and significant mortgage production right off the top.
MonCana has about 75 employees and is headquartered in Calgary, Alberta. Its mortgage broker market share is just over 1%, according to first quarter D+H data.
Many expected bigger numbers from MonCana but let’s face it, it’s basically selling the same vanilla mortgages funded by the same mortgage buyers as other small mortgage banks. That doesn’t give it a huge edge with respect to product features or cost of funds. That said, its personnel and broker service are first rate by all broker accounts.
MonCana also has more than $100 million in deposits. When it first launched, some thought it would be able to amass a giant deposit base to fund mortgages with. But due to regulatory capital requirements, deposit competition and cost, and other factors, that’s been easier said than done.
Deposits presently fund just a small percentage of its mortgages. Again, MonCana funds most of its loans by selling them to mortgage purchasers (“aggregators” or investors). Vukanovich says diversifying the company’s mortgage funding base is essential and that deposits will be a growing source of funding over time.
MonCana brokers won’t see much change in the near term. “Post acquisition, MonCana’s brokers will experience the same great service and people and, over time, see a more extensive mortgage and deposit line up.”
Vukanovich confirms that MonCana founders James Clayton and Gerry Wagner will stay on as key executives of the bank.