BUSINESS/ECONOMY

Takeover at Continental

PATRICIA BEST October 13 1986
BUSINESS/ECONOMY

Takeover at Continental

PATRICIA BEST October 13 1986

Takeover at Continental

Almost a year ago David Lewis, the 49-year-old chief executive of the Toronto-based Continental Bank, presided over a crowded news conference in his bank’s elegantly appointed boardroom. The subject of discussion was the sudden crisis in confidence that had engulfed Canada’s banking system following the collapse a month before, in September, 1985, of two Alberta-based banks. Nervous depositors at the Continental had withdrawn $1.4 billion, and there was wide speculation that it too would fail. Lewis chose to gamble on honesty and made public the bank’s deteriorating position. At the same time, he arranged for backup loans from the Bank of Canada. During the next 12 months, while the deposit drain continued and the rumors persisted, Lewis and his advisers conducted a quiet search for a buyer for the beleaguered bank. Last week a smiling Lewis told reporters gathered in his boardroom that British-owned Lloyds Bank had agreed to take over 90 per cent of the Continental’s $6 billion in assets for $200 million. Said Lewis: “Tonight we can all sleep well.”

For the Continental, the deal promises substantial benefits. Lloyds Canada, which has assets of $448 million, will absorb most of the Continental’s business and all of its 1,500 employees. Lewis and other senior Continental executives will run the merged operation, to be called Lloyds Bank Canada. And the Continental’s common sharehold-

ers, whose stcrck has traded recently at $11.00, will receive between $15.25 and $16.25 per share by March, 1987.

For Lloyds Canada, the takeover will allow it to leapfrog to first place from 47th in terms of assets among the 55 foreign banks that operate subsidiaries in Canada. Said Sir Jeremy Morse, chief executive of the London parent company, Lloyds Bank PLC, the fourthlargest bank in Britain: “It is a great step forward in a hurry for us.” The sale, which received federal Finance Minister Michael Wilson’s approval only half an hour before it was announced, goes before Continental’s shareholders in a vote on Oct. 31. The immediate reaction from banking stock analysts was positive. John McColl, a banking analyst with McLeod Young Weir Ltd. in Toronto, said that the deal “makes the stability of the banking system look even better.”

Indeed, the sale marks a turning point for small banks in Canada. Last week Lewis said he realized last November that even if the Continental recovered its depleted deposit base, it was too small to survive in the fiercely competitive and increasingly international financial services industry. Said Lewis: “That prospect has been worrying us. None of us ever wants to go through again the kind of difficulties we have struggled with in the past year. It has been no fun at all.”

PATRICIA BEST

ANN SHORTELL