That could soon change, says Chadwick Westlake, who became EQ Bank’s chief executive last August and announced a transformative, potentially career-defining deal to purchase PC Financial back in December. “We will be a household name by the end of this year,” he said. By purchasing the PC Mastercard portfolio and PC Money accounts and integrating Loblaw Cos. Ltd. and its loyalty program PC Optimum in a partnership, the EQ Bank brand might be present in 1000’s of grocery stores and ATMs across the country.
Big deals and leadership changes usher in a brand new era
When Westlake took the position, he knew he needed to make this deal occur to extend awareness of a bank that 80 to 90% of Canadians don’t learn about. “This was a top priority because I firmly believe this is the key to creating a significant challenger to Canada. There is no deal like this,” he said in an interview.
The deal, expected to shut this 12 months, is probably the most significant but removed from the one change coming to the bank because it goals to create real competition with the Big Six that dominate the Canadian market.
There is a leadership change: Westlake takes over the role after former CEO Andrew Moor suddenly died after 18 years on the helm. The bank has made other key hires, equivalent to Anilisa Sainani, who took over as CFO last August, while the bank itself has also moved right into a brand recent headquarters.
Digital banking meets real visibility
But it is the take care of PC Financial that can stand out most to Canadians as EQ Bank’s yellow branding appears in stores, solving a key challenge for a digital finance company attempting to compete with established players.
“One of the things we do is gain more trust, and trust is paramount in banking,” Westlake said. He said digital-only banks are reaching a plateau at a certain level, particularly when Canadians are quite complacent of their banking preferences. “It’s held us back in a way. I think it needs to be more real,” he said. “People still like people.”
However, that does not imply EQ Bank branches will pop up on street corners, as EQ places a powerful give attention to costs and efficiency. Growth could as an alternative come from a possible expansion of the 180 pavilions in grocery stores. “You get all the features without needing the vault and cash, and keep it simple.”
EQ Bank reduces costs and manages credit risk
Westlake has also worked elsewhere to maintain the bank lean, pushing through a round of layoffs last fall that cut about 8% of its staff after the bank’s expenses soared. “While we have made some big and difficult decisions, it is important for us to work very efficiently.”
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In addition to increasing efficiency, EQB Inc., because the parent company is thought, has also worked to limit credit losses that include economic uncertainty. The bank has relatively more exposure to the mortgage market than the Big Six and can be pushing heavily into alternative mortgages to serve customers equivalent to the self-employed who may struggle to acquire a standard loan.
In probably the most recent quarter, EQB saw a rise in its proportion of distressed loans, which led to a rise in loan loss provisions. The bank experienced “significant credit deterioration that was felt across its loan portfolio,” Scotiabank analyst Mike Rizvanovic said in a note following EQB’s Q4 results. The PC Financial deal will make the bank much more sensitive to future credit cycles, Rizvanovic noted, adding that he is worried that PC Financial’s card portfolio tends to have much higher loss rates than the larger banks’ cards.
Westlake identified that PC Financial cards have higher loss rates and said they’re about in the course of the pack with big banks, but in addition said alternative mortgage customers may also be more resilient in downturns.
Rizvanovic said the deal provides helpful revenue diversification, could possibly be “transformative” for the bank’s deposit business and he sees strong growth potential within the bank card business, but said overall it wasn’t such a transparent win.
Other analysts were more optimistic, including BMO’s Étienne Ricard, who raised his price goal on EQB to $130 from $108, saying the deal was strategically advantageous, diversified the bank and offered cross-selling potential.
EQ Bank relies on asset management to shut product gaps
One thing the PC deal doesn’t bring, nevertheless, is the introduction of wealth management features like stock trading or investment advisory services. Besides bank cards, that is the opposite big gap for EQ Bank, and one Westlake said they’re actively attempting to close, likely through one other acquisition or partnership. “This is similar to the PC deal, which I believe cannot be built.”
If every little thing comes together, EQ Bank could have the product range it must compete, but other online banks are also quickly gaining strength. Wealthsimple Inc. launched its first bank card last 12 months, and Questrade Financial Group secured a banking license last October and plans to expand.
Westlake said all of the alternatives combined still represent such a small share in comparison with the Big Six that there remains to be room for growth for all.
