Is big bank consolidation the new trend?
National Bank of Canada's $5 billion all-stock deal to acquire Canadian Western Bank is the latest sign of impending consolidation in the Canadian banking sector, according to analysts. The acquisition will expand National Bank's presence into Alberta and British Columbia.
“Our view has always been that there will be consolidation in the Canadian banking space because the large banks have structural competitive advantages that the smaller banks can’t overcome,” Veritas Investment Research analyst Nigel D’Souza told the Pembroke Observer.
“They own most of the market, they have extensive national branch networks, they have lower funding costs… when you put all that together, these are advantages that the other, smaller banks cannot overcome. Ultimately, those banks will have to be consolidated.”
The deal, which requires approval from two-thirds of Canadian Western shareholders at a September meeting, aims to grow National Bank's retail segment.
Read more: National Bank to acquire Canadian Western Bank for $5 billion
The Competition Bureau stated it "has a mandate to review mergers to determine whether they are likely to result in a substantial lessening or prevention of competition."
Analyst John Aiken of Jefferies Securities said there is a "high degree of likelihood" the deal will be completed, expecting regulatory approval. However, he noted a "competing bid cannot be fully discounted."
The consolidation trend follows Royal Bank of Canada's acquisition of HSBC Bank Canada last year. Analysts suggest larger banks are bulking up to tackle headwinds like mortgage defaults, trade issues, volatile commodities and market uncertainty.
"For banks, bigger and more diversified should mean more robustness in facing the turbulence, or at least that is the assumption," said Paul Samson of the Centre for International Governance Innovation.
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