It has been a debate about how many branches would close and how many jobs would be lost, about how badly rural communities and small businesses would be hurt. Such anxieties have fuelled opposition to big bank mergers for the past 10 months—and led to the widely held assumption that Finance Minister Paul Martin was planning to turn down the deals this week in one of the most closely watched decisions of his political career. A key report from the federal competition bureau—Ottawa’s antitrust watchdog—cleared the way for Martin’s response by detailing how the mergers of the Royal Bank with the Bank of Montreal, and the Canadian Imperial Bank of Commerce with the TorontoDominion Bank, would lead to undue concentration in key parts of the banking business.
The first reactions from the bankers indicated they did not believe the case against the mergers was ironclad and insisted they could fix the problems identified by the bureau—if they were given a chance. And, in another late development, a report by the Commons finance committee last week broadly supported bank mergers—unless a new review process shows they are “counter to the public good.”
Shifting away from the Main Street worries that have dominated debate so far, the committee focused on Bay Street concerns—suggesting that Toronto’s franchise in the big leagues of international banking would be jeopardized if the mergers are blocked.
While the competition bureau report may be the definitive piece in the process, the Commons committee could not be lightly ignored. Its recommendations are in line with the September report of a federal task force on financial institutions, headed by Regina lawyer Harold MacKay, and with key parts of a Senate banking committee study released earlier this month. ‘Three reports have now said mergers are an acceptable and viable business strategy. They suggest a
very clear merger review process and a tight timetable,” David Moorcroft, vice-president of public affairs at the Royal Bank of Canada, told Maclean’s. “We agree.”
The competition bureau delivered the results of its exhaustive study of the two proposed mergers late last Friday. Underlining the bureau’s clout, Royal chairman John Cleghorn and Bank of Montreal chairman Matthew Barrett made the trip to Ottawa late Friday to meet for two hours with bureau director Konrad von Finckenstein. He
advised the banks in detail on how the two mergers would change the competitive landscape for financial services across Canada. Details of the bureau’s report were scheduled to be made public by Dec. 14—before stock markets opened—and Martin, who also received the report on Friday, was expected to comment later.
The banks were braced for the bureau to highlight major problems—including too much concentration in their branch networks, the credit-card business and investment banking and brokerage services. But Moorcroft, in remarks echoed briefly by
Cleghorn and Barrett after their meeting with von Finckenstein, stressed that none of the bureau’s concerns would be impossible to overcome. The banks could offer to sell branches or other assets in locations where too few competitors would be left after the mergers. “We have a pretty good feel for what the competition bureau concerns are going to be,” Moorcroft said before the banks got the report. “There are lots of possible solutions.”
But the banks may never be given a formal chance to offer those solutions. On the weekend before his decision, senior Liberals close to Martin said his most likely answer remained a firm thumbs down to the mergers on the basis of the bureau’s findings—denying the banks any opportunity to propose remedies. Insiders said Martin is hesitant to let the banks go ahead with what would be a massive restructuring of the industry in the absence of government guidelines. Instead, he was expected to set in mo-
tion a reform of federal financial services laws to broaden competition for the banks from credit unions and other financial institutions. How long it would take to enact reforms, and whether the banks would be allowed to revive their merger plans next year under new rules, are key questions Martin would have to answer if he indeed rejected the mergers.
The banks have long realized their chances of winning approval from Martin before the end of 1998 were slim. The nadir for their campaigns to win political support for the mergers came in early November,
when 54 Liberal MPs—more than one-third of the government members—signed a caucus report criticizing the mergers. Headed by Toronto MP Tony Ianno, the caucus group rejected virtually every argument in favour and endorsed nearly every reason against them. As for the rest of the Liberal caucus, if any MPs harboured sympathy for the bankers, they were keeping quiet about it.
At least, they were until last week. The finance committee report showed another side of how the Liberal caucus views the mergers. Committee chairman Maurizio Bevilacqua, representing a Toronto-area riding, coaxed fellow Liberals on his committee to accept a report that emphasizes keeping Canada’s big banks internationally competitive—supporting the banks’ own core argument. The report stressed the positive potential of the deals—but with some caveats. “In the long-run, [mergers] can mean betterpositioned financial institutions, able to successfully face global competitors and thus create jobs in Canada,” the report said. “On the other hand, they can also mean less competition in the domestic market. It is important, therefore, that a review process be in place to assess the effects that consolidation could have.”
When it comes to assessing economic well-being, Bevilacqua’s report takes a long, worried look at Toronto’s future as a financial centre. It points out that, after New York City and San Francisco, Toronto ranks third in North America in terms of financial sector employment, with more than 165,000 jobs. If the banks are denied, the report warns, Toronto “could easily find itself with a much diminished role.”
Picking up on that fear, the banks renewed their emphasis on Toronto’s fate in the final, frantic days of lobbying before Martin’s much-anticipated decision. In a speech to Toronto’s Board of Trade last Friday, Alan McNally, chairman and chief executive of Bank of Montreal’s Chicago-based Harris Bank subsidiary, argued that without the mergers, Toronto was at risk of “rapidly and steadily declining” as a banking centre. Letting Toronto decline would clear the path, he warned, for huge U.S. banks to march into the Canadian market. “The fundamental issue on Canadian bank mergers is not Canadian consumers,” McNally, a Canadian, said. ‘They will be very well served. The only question is whether they will be served by Canadians or Americans.”
It may be too late for that sort of hard-hitting approach to have much impact. As the Bank of Montreal’s Barrett left the meeting with von Finckenstein on Friday, he said bank officials were looking forward to finding ways to deal with the bureau’s concerns about the industry concentration that the mergers would bring—“assuming we’re permitted to do so by the minister.” The biggest political football of the season was back in Martin’s hands. □
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