Bucking the big trend

Deirdre McMurdy October 4 1999

Bucking the big trend

Deirdre McMurdy October 4 1999

Bucking the big trend

Deirdre McMurdy

It is a Friday morning in late summer, and Scott Paterson is not supposed to be at work.

Rather than lounging by the lake with his three young daughters, however, the 35-year-old CEO of Yorkton Securities Inc. has interrupted his vacation to return to the office. And undeterred by city heat or languid trading volumes, he bounds about his corner compound, barely able to contain his enthusiasm. “I’ve been away from the office all week,” he explains. “I’m kind of wound up.”

Certainly nothing gets him going like a discussion of his firm or its place in the fast-changing Canadian brokerage business. First Marathon Securities Ltd. recendy became the last of the large independent securities dealers to succumb to a big bank buyout in a deal with the National Bank of Canada. But rather than fretting about survival in a consolidated field, Paterson relishes the prospect. “We’ve always believed that this business would be polarized and the middle ground would be swallowed,” he says. “We’ve been waiting for exacdy this.”

That, however, suggests a certain passivity. In fact, Paterson has been scrambling to reinvent Yorkton ever since he landed there in 1995 after leaving Midland Walwyn Capital Inc. He is confident that small, flexible, highly focused “boutique” dealers like Yorkton will thrive, even though size and scope have come to be equated with competitive advantage. His strategy is “to focus on what Canada is all about.” In Paterson’s view, that means covering core natural resource stocks and a hybrid blend of so-called sunrise or knowledge-based industries, all wrapped together under a clear brand image.

That presentation of the firm has taken considerable buffing. Paterson readily admits that in the early ’90s, Yorkton was considered “a bit of a bucket shop.” The firm was driven mosdy by the promotion of Vancouver-listed junior mining stocks to retail clients. “I was intrigued but skeptical when Yorkton approached me,” says Paterson. “No question, the historical record of the firm was a concern.” Still, for an ambitious 31-year-old, the tide of executive vice-president and the opportunity to make his mark were an irresistible combination. “My grandmother wanted me to go back to school and get my MBA,” he says. “But I could never resist getting involved with the next deal long enough.”

His personal trajectory has been remarkable in a notoriously cutthroat business. Yorkton is owned by just over half of its 500 employees and Paterson is the biggest stakeholder, with a 12-per-cent interest. He notes, with no attempt at false modesty, that since he joined Yorkton, its pretax return on equity has averaged 73 per cent a year.

Ownership has always been an issue with Paterson. Two days before the 1987 market crash, he left RBC Dominion Securities for a chance to own stock in his next employer, Richardson Greenshields of Canada Ltd. From there, he moved over to publicly held Midland Walwyn in 1991, where he specialized in bringing fledgling high-tech firms to market. “It was all very new and risky in those days,” he says. “But I was hungry and young, and I was prepared to spend long hours scouring for new companies.”

Patersons vision for Yorkton is rooted in those prospecting days. While he has preserved the company’s coverage of natural resources stocks, high-growth “leisure and lifestyle” industries have pride of place on the Yorkton roster. The firm has a team of investment bankers dedicated to companies that they expect to benefit from shifts in North American demographics. For example, to capitalize on the youth market, Yorkton has just underwritten a stock issue for a new, independent Canadian music company, Song Corp. And Paterson is weighing the investment potential of Club Link Corp., a golfcourse developer, and Four Seasons Hotels Inc., both of which target an aging, affluent population.

Investment potential can be harder to assess when it comes to the high-flying Internet sector. After underwriting three stock issues for Canadian online retailer Bid.Com International Inc. (in which Rogers Communications Inc., owner of Macleans, holds a minority stake), Yorkton issued a sell recommendation as the shares soared to more than $20 each earlier this year. Bid. Com management lashed out at that call, blaming the broker for its sharp decline in share price—which dropped to a low of $5.50, but closed last week at $7.45. Paterson admits it was a tough decision—and one that has continued to haunt his firm. When Yorkton led in the recent stock issue for Chapters Online Inc., he had to explain the Bid.Com recommendation to that firm’s executives. “Sure there’s a big risk attached when you contradict a client,” says Paterson. “But if you never call a sell, what kind of credibility does your buy recommendation have?”

That investment in long-term credibility and the cultivated perception of independent research may be the shrewdest part of Paterson’s game plan. But at the same time as he talks about plans to expand Yorkton’s reach, he also notes that his predecessors at the firm, Bob Cross and Frank Giustra, left before the age of 40 to redeploy their personal profits and to pursue other ventures. That gives Paterson four years to execute his grand plan and to follow their example. Maybe he will even heed his grandmother’s advice and get that MBA.