BUSINESS WATCH

High adventure in the bank trade

Peter C. Newman January 26 1987
BUSINESS WATCH

High adventure in the bank trade

Peter C. Newman January 26 1987

High adventure in the bank trade

Peter C. Newman

BUSINESS WATCH

At a dramatic meeting in Vancouver next week, shareholders of the Bank of British Columbia will be voting on whether or not to accept somewhere between 66 cents and $2 for shares some of them bought for as much as $22. And no one attending that traumatic meeting—which follows last month’s takeover of the bank by Hong Kong interests—will be more interested in the outcome than Edgar Kaiser Jr., its former chairman and one of its largest shareholders. Kaiser stands to lose not only more than $7 million cash but his reputation as one of the West Coast’s most successful entrepreneurs.

“I do believe,” he told me, “that the sale was the best solution possible for the branches, the customers, the employees—for everyone but the common stockholders. But if you believe, as I do, that there was a genuine need to have a bank based in Western Canada, then the outcome is very, very sad.” Kaiser, who belongs to one of the reigning American business dynasties, took out his Canadian citizenship in 1980 and four years later was the surprise choice to head the B.C. bank, brainchild of then-premier W.A.C. Bennett and established in 1966. When Kaiser took over, the institution was suffering from serious internal squabbles, with its chairman and president communicating only through memos, as well as the fallout of the recession that was draining its treasury by a net outflow of about $10 million a month. Independent experts now believe that it was within three weeks of collapse because, unlike most Canadian banks, which are leveraged 20 or 25 to 1, its loans/assets ratio was two or three times as high.

Kaiser moved in like a tank, writing off most of the bad loans in one swoop by selling them to the Singer family in Calgary at a discounted rate—with Ottawa’s permission for such an unorthodox bailout tactic. To get some equity flowing into the bank again in a hurry, he did not wait to go through the long and cumbersome process of selling a public issue. Instead, he got on the phone and in 10 days had convinced moneyed friends to invest $72 million (at $6 each for treasury shares) and bought $1 million’s worth himself. That was eventually followed by an $81-million public issue, with Kaiser acquiring another 200,000 shares.

Within three months the bank was in the black, its more than 15,000 shareholders were a happy lot, and many Pacific-coast customers responded with a vote of confidence by leaving their funds on deposit with the bank. The path from that temporary euphoria led straight down, and much of it was due to plain bad luck. “For everything in life,” says Kaiser, “you need a little bit of luck, and we just didn’t get it. Nobody could have projected the

bankruptcies of the Canadian Commercial and Northland banks and especially the way they were handled. That really hit us. That and the internal debate that began on the future of the smaller banks, which eventually turned off our interbank funding. No one could have predicted the bottom falling out of oil prices, which affected so many of our customers, the decline in the value of the Canadian dollar and the subsequent rise in interest-rate spreads. It was all these factors com-

pounding at once that really hurt us.” The final blow, according to Kaiser, came when he was desperately looking for some solid endorsement from the western provinces by having them commit token funds to his bank, and everyone agreed it was a great idea, but not one of them actually did it. “If British Columbia had declared, ‘Okay, this is a local bank, we’re buying five per cent of the equity’—that would have been it. All the negative speculation would have stopped.

“Also,” said Kaiser, “we needed the confidence of Bay Street and particularly the Big Five banks, and because I knew I would not be accepted as a member of the club, we hired some of the best bankers available: Dale Parker of the Montreal as our president and George Hare of the Scotia as our vice-chairman. With two of their own here, I expected more support, but it was never forthcoming.”

The harassment of the Big Five was never very subtle. A $50,000 letter of credit drawn on the Bank of British Columbia was conspicuously not honored, and when inspectors brought in by the Big Five gave the B.C. bank a clean bill of fiscal health after the Canadian Commercial Bank fiasco, not one of them made that fact known publicly. “It was not any decline in our retail base but the difficulties we had in interbanking funding that caused our liquidity problem,” said Kaiser. That and some large loans that turned sour, particularly the $100 million divided between Peter Paul Saunders’ faltering Versatile Corp. and Pangea Petroleum in Calgary. Those loans combined with the exaggerated report on CBC TV about the bank’s problems made the situation untenable, and Kaiser started to look for buyers.

The low point in those negotiations came during a session with federal Deputy Minister of Finance Stanley Hartt who, according to a witness at the meeting, turned to Kaiser and taunted him with the remark, “You’re a rich American, why don’t you just put more money in the bank?”

And there is one other point. At the end of our talk, I asked Kaiser, “Wouldn’t it have been better for Ottawa to grant that $200 million it gave to the Bank of Hongkong to the Bank of British Columbia, which would have been enough to save it?”

“There are those,” replied Kaiser with not a trace of humor in his voice, “who say that.”