They started out by alienating Finance Minister Paul Martin, the man who holds the fate of their $39-billion merger in his hands. Then, the Royal Bank and the Bank of Montreal watched helplessly as Liberal MPs voiced fierce resistance to the blockbuster deal. Compounding the two banks’ political troubles, rival institutions vowed to poach their customers while they struggle to contain a mounting public relations debacle. So went the first week in the campaign by the Royal and the Bank of Montreal to win support for their unprecedented marriage. At the headquarters of the two giants on Toronto’s Bay Street, senior bankers struggled to put a brave face on their dilemma. “You have to give people a chance to express their emotional views before they are willing to listen to the facts,” said David Moorcroft, Royal’s vicepresident of public affairs.
On the evidence so far, that may take some doing. The left wing of the Liberal caucus—all but moribund during the government’s four-year fight to wipe out the federal deficit—has been reignited by outrage against the merger. Even some of the more moderate voices in the party are sounding deeply skeptical. They fear that the deal will mean less competition, particularly in small towns, and thousands of lost jobs as branches are combined. Significantly, neither Martin nor Prime Minister Jean Chrétien has done anything to quell the uproar among the party’s rank and file. “These two banks have galvanized the caucus around this issue in a way that I have seldom seen,” says Michael Robinson, a public policy consultant at Ottawa-based Earnscliffe Strategy Group and longtime adviser to Martin. “They have made a significant tactical mistake.”
Liberal MPs take aim at Canada's richest merger
Of course, there was no way the Royal and the Bank of Montreal could have unveiled the biggest merger in Canadian history without courting controversy. But by failing to give Martin advance notice of their Jan. 23 announcement, the banks, perhaps unintentionally, set a defiant tone. Martin’s initial response was a curt statement that he would not rule on the proposal until he receives the recommendations of a federal task force on the financial services sector. Within days, however, Martin pre-empted the task force by demanding that the two banks promise not to eliminate any jobs and to guarantee better services for small towns and small businesses. At a two-day Liberal caucus retreat in the resort town of Collingwood, Ont., Martin’s mood appeared to energize MPs who might otherwise have thought twice before voicing a strong opinion so early in the debate. ‘We’re trying to determine if a merger like this would be in the best interest of Canadians,” said Ontario MP Tony Valeri, Martin’s parliamentary secretary. “The way it looks right off the top, clearly it would not be. At least that’s the view of caucus.”
The Liberal caucus has demonstrated hostility towards the banks before—most decisively in its rejection two years ago of their requests to sell insurance through their branches and to expand into car leasing. One theory in Ottawa is that the Royal Bank and the Bank of Montreal were hoping to win Martin’s support by appealing to his stated belief that Canadian companies need to compete more aggressively outside the country. But if so, the bankers may be disappointed. In a key shift in emphasis late last year, Martin began to muse publicly about the potentially damaging impact of global competitive forces. “The fact is that globalization has proceeded at a pace that has outstripped the capacity of governments to fully manage its consequences,” he said in a Nov. 12 speech at the University of Toronto that drew little attention at the time.
The banks’ merger plan has given Martin a chance to show what he meant when he talked in that speech about coping with “the backwash of globalization and technological change.” Politically, the timing is perfect for the finance minister. Having acquired an image as a hard-nosed champion of fiscal rectitude, he now faces grumbling in the caucus over the fact that, at least this year, there will be only a modest amount of new spending to reward Canadians for wiping out the deficit. Taking on the banks could bolster his popularity among Liberals at a time when the party is beginning to contemplate a successor to Chrétien.
That does not necessarily mean that Martin will turn the banks down flat. Job guarantees—perhaps the most contentious item on the list of issues raised by the proposed merger—offer one avenue for compromise. Last week, Bank of Montreal chairman Matthew Barrett and Royal Bank chairman John Cleghorn pointedly refused to promise that every one of their current employees will have a job if the merger goes ahead. But early speculation that the banks secretly intend to lay off many thousands is probably wrong. For one thing, the banks have estimated that a merger would allow them to eliminate at most 9,000 positions from their combined workforces of 85,000 over the three years it would take to meld their operations. Since 7,000 employees of the two banks retire or otherwise leave voluntarily every year, Moorcroft says the workforce reductions could easily be absorbed by attrition. If those figures are correct, there seems to be ample room for the two banks to offer Martin a more strongly worded assurance about employment levels—the sort of concession that could make a merger more politically palatable.
Explaining the employment outlook is part of the selling job that lies ahead for the two banks. Over the coming months, Moorcroft said, Cleghorn and Barrett will oversee a methodical lobbying effort, including face-to-face meetings between senior bankers and any MP who cares to listen. Added Moorcroft: “Have we got off on the wrong foot with some people? Probably. Should we have been going behind closed doors and secretly lobbying certain people before we made this announcement? I don’t think so.”
Still, some of the early comments made by the top bankers appear to have made matters worse. Some Liberals thought the avuncular Barrett sounded too glib last week when he boasted that the merged bank would be powerful enough to “kick ass” in the United States. “This is not something to play around with,” Valeri said. “This affects people’s lives.”
If the two banks do manage to win over Martin and most of the Liberal caucus, they will be breaking a dismal string of failures to get their message across on Parliament Hill. Two years ago, after the industry failed to convince Ottawa to give it the right to sell insurance from bank branches, Barrett complained bitterly that Canadian banks have “the most ineffective lobby in the world.” Bank of Nova Scotia chairman Peter Godsoe concurred, describing the banks’ combined efforts to sway politicians as “incompetent.” John Chenier, editor of the Ottawa-based newsletter The Lobby Monitor, says that in their most recent lobbying battles, the banks have succeeded in winning over experts such as the bureaucrats in the finance department, only to be out-manoeuvred when it comes to winning the hearts and minds of ordinary MPs.
Could the banks once again be staking too much on their ability to persuade the experts? Senior officials at both the Royal Bank and the Bank of Montreal were laying heavy emphasis last week on the fact that an interim report from the federal task force, released last July, leaned towards allowing mergers. Government officials have also said they expect the task force to give mergers the green light in its final report, due in September. But how much weight that recommendation will carry is far from clear. “There may be quite a bit of discrepancy between the task force report and what we hear from Canadians,” Valeri said. After a rocky first week, and with many Liberals opposed to the marriage, the Royal Bank and the Bank of Montreal are facing a fight every step of the way to the altar. □
The story you want is part of the Maclean’s Archives. To access it, log in here or sign up for your free 30-day trial.
Experience anything and everything Maclean's has ever published — over 3,500 issues and 150,000 articles, images and advertisements — since 1905. Browse on your own, or explore our curated collections and timely recommendations.WATCH THIS VIDEO for highlights of everything the Maclean's Archives has to offer.