HOW TO START A BANK AND ALMOST LOSE YOUR SHIRT
It happened to Sinclair Stevens, who built a $130 million empire— and then blew it. Why? He moved too fast and borrowed too much—but worst of all, he challenged the traditions of Canadian banking
IF YOU SAW HIM MURMURING in the ear of some Ontario politician at the Albany Club, or quietly telling his broker over the phone to sell $500,000 worth of municipal bonds, or had read his company's embossed annual reports (“ . . . record levels of achievement . . . enters 1966 geared for solid, continuing growth . . .") or watched his smooth performance on TV last February during the Great Coyne Crisis, you would be entitled to suppose that Sinclair McKnight Stevens, founder and deposed master of the $130-million British International Finance empire, is a certified. paid-up. gilt-edged, self-assured innercircle member of the Canadian financial Establishment.
But you would be wrong. Despite a personal fortune of more than a million dollars, despite the unread copies of Fortune and The Institutional Investor on his office coffee table, despite a lot of friends in Ottawa and a lot more admirers on Bay Street, Sinclair Stevens is now identified, perhaps permanently, as someone who Never Quite Made It. If you mention his name to people in the money business these days, a sort of hush comes into their voices, and they say things like. “Well . . . ah, Sine was never very strong on the liquidity thing, you know ...” Then their voices trail off. It is almost as though a good man had hit the bottle late in life and then died. The tone is half deference, half regret. And sometimes you can even sense a feeling akin to pity — for it is plain to them that Stevens, at the age of 40, has missed his chance at the Big League, and missed it forever.
There was a time, about a year ago, when it was conceivable that he might some day achieve something no other Canadian has managed in half a century: to build a bank, a new bank, in this cautious country where the banks are very old and very powerful and very, very few. But a number of unfortunate things happened to Stevens and, when the freeze-up came, it left him playing an unaccustomed role: that of the Loser.
This is the story of how it happened: How Stevens’ BI F group grew and, when it grew too fast, got short of cash and into trouble; how the banks reacted to the crisis, forcing his group of companies into a brief and futile period of trusteeship; how James Coyne, former governor of the Bank of Canada, and president of the BIF-controlled Bank of Western Canada, lost his cool and much of his stature in the resultant crisis; and how—yes. at the 1 1th hour—a young but formidable financier from Montreal named Marc Bienvenu stepped in to buy the group. / continued overleaf
"You’ve ruined Westbank’s name!” shouted James Coyne—and rushed from the boardroom "with tears in his eyes”
That wasn’t the end of the story, of course. Last May, Bienvenu tried to fire Coyne as Westbank’s president, but was balked by the bank's western directors, none of whom has any money to speak of in the firm. At this writing, it was unclear whether Bienvenu would renew his attempts to fire Coyne or simply say to hell with it and wind up the bank. But the squabble didn’t exactly enhance the prospects of the first new Canadian bank in half a century — and that is a pity. For what our banking system needs more than anything right now is solid new banks, especially regional ones.
This system, as the Canadian Bankers’ Association frequently observes, is one of the strongest and safest in the world. There hasn't been a bank failure for 44 years — and much of the credit is due to the fact that our banks are so awesomely fny. (There arc 13,000 U. S. banks, for instance, that are smaller than the smallest Canadian bank.) The eight operating chartered banks control assets worth about S27 billion — roughly as much money as the Americans have invested in Canada.
Until the revised Bank Act took effect last May. this monolithic system was almost eerily uncompetitive. The banks enjoyed raiding each other's big accounts, but for the average depositor there was little to choose between them. All offered roughly the same interest rates to depositors, opened and closed their 5,800 branches at the same time and lent money on roughly the same terms. And despite the fact that postwar profits were undeniably good, the number of banks actually lessened through mergers instead of increased. The cozy circle became tighter and tighter; and a small group of senior bank executives — well known to each other but extremely shy, as befits bankers, of personal publicity — had the major say over the deployment of more money than the federal government spends in two years.
This was the Establishment that Sinclair Stevens challenged and attempted to change. In a sense he succeeded, for already the banks are beginning to emulate the supermarket methods he pioneered. But it was probably inevitable that Stevens himself should fail to crack the inner circle of Canadian banking; tor despite his conservative suits, his Conservative opinions and his unflamboyant personal style, Stevens never succeeded in making himself appear what bankers like to think of as Completely Sound.
He was always too entrepreneurial, too much ot a hustler. He opened his first bank account at the age of six, with a gift of five pounds he'd received from his uncle in Ireland. By the time he was ten, living on his father’s dairy farm near Kleinburg, Ontario, he’d swung the first deal of his financial career: he bought 20 duck eggs, stuck them under some hens and, a few weeks later, sold the young ducklings for $20. “The profit mark-up was 100 percent,” Stevens recalls, “and ever since then I've had a lot of respect for money. When most people earn $10,000, they expect to spend it. But as far back as I can remember, Eve always thought of money as something you can work with.”
He kept hustling through school, college (a BA in journalism from the University of Western Ontario) and Osgoode Hall LawSchool. By the time he graduated in 1955 Stevens had, through part-time jobs that included everything from raising pigs to covering police courts for the Toronto Star, enlarged his bank account to $1 (),()()(). That’s when he began wheeling and dealing in earnest.
He started out in real estate (he and his lawyer wife Noreen still live in the seventhfloor suite of an apartment he promoted on Toronto’s Bay view Avenue), branched out into mortgages and, in 1959, got into the money business by buying an old and profitable Sarnia firm called Lambton Loan and Investment Company. Shortly after, he founded British International Finance (Canada) Limited as the corporate vehicle for even bigger deals.
In 1962 he founded York Trust and Savings Corporation, and then started buying up or creating loan, trust and savings firms, including Winnipeg’s Fort Garry Trust Company, the Edmonton-based Alberta Fidelity Trust Company and International Savings and Mortgage Corporation in Montreal. By 1965, he’d moved into mutual funds, founded a bank in Nassau as the vehicle for BIF’s activities outside Canada, and secured financing and a charter for the Bank of Western Canada. At the peak of its growth, BI F was a 32-company financial group with assets of $130 million. Stevens was telling financial analysts that with the equity base he'd already built, the group’s assets could grow to $500 million by the 1970s. In one of the more notable growth stories in the annals of Canadian capitalism, he’d managed to become one of the country’s biggest money dealers in less than five years. Why did Sinclair Stevens grow so fast?
There were two main reasons, and one of them was James Coyne. Stevens hired him in 1963 as chairman of York Trust, and discovered that his name was pure magic to depositors. Coyne had emerged from his noisy squabble with John Diefenbaker with no job to speak of, but with a nation-wide reputation for integrity and financial acumen. His association with York Trust made it easier for Stevens to build the company; and his name on the Westbank prospectus helped the underwriters to sell about twice as much stock as they'd expected.
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“I thought I had $10 million —but suddenly I had nothing”
The other reason was Stevens' flair for attracting depositors. His methods, by the standards of conventional banking. were about as orthodox as a psychedelic mass at Vatican City. First of all, he conceived the heretical notion of locating his branches where people found them handiest: right
inside supermarkets. Secondly, he compounded his sins against orthodoxy by keeping them open at the most convenient times — until 5 p.m. on most days, until 8 p.m. on shopping nights, and all day Saturday. Finally, and most horrendous of all, he caused York Trust to behave as though it actually wanted to do business with people. New depositors were offered account-opening premiums that ranged from a chance at a free holiday to pink blankets. The drum-beating approach succeeded wondrously; before the trouble started, York Trust's 19 Toronto branches had pulled in $50 million in deposits and guaranteed investment certificates, and were growing at a rate roughly four times the average for trust companies — and at ten times the rate of the chartered banks.
But trouble was coming, and it snuck up on Stevens with little warning.
On June 17. 1965, in London during a European holiday, Stevens got an excited phone call from BIF's executive vice-president. Phil MacDonald. “Sine,” he said. “Atlantic's gone under. I wanted you to know.”
Stevens knew what that meant. Atlantic Acceptance, another one-man finance group that had shown phenomenal growth in the 1960s. had suddenly defaulted on its debts. Everyone in the know — including certain lethargic officials of the Ontario government — had been hearing for months that Something Fishy was going on at Atlantic. But the extent of the fishiness — which is still being investigated by a royal commission — wats truly staggering. Simply stated. Atlantic had borrowed tens of millions of dollars from some of the most revered and cautious financial institutions in North America, and now $50 million or so seemed to have vanished. Stevens knew that the banks were likely to scrutinize other loans very carefully. The easy-money binge was over.
He cut short his holiday and returned to Toronto. One of the first people he saw — the date was June 25 — was G. J. Touchie. general manager of the Bank of Nova Scotia. The conversation, in Touchie's King Street office, was brief, cordial and stunning; the bank wished to trim BIF’s line of credit and wanted its loans repaid as soon as possible. "He couldn't have hit me harder,” Stevens says. "I thought we had $10 million worth of leeway — but when I walked out of there I had nothing.”
That’s Stevens' version — "They pulled the rug out from under me." The Bank of Nova Scotia, unsurprisingly. sees it very differently. “We
bailed that man out.” says one BN’S official, "when he was in very deep. We did everything we could to help him."
Stevens badly needed help. York Trust had about $35 million on deposit in the form of short-term corporate funds. Stevens had invested this money in long-term NHA mortgages
and government bonds. After the Atlantic collapse, York Trust's corporate depositors warily began withdrawing their money. Meanwhile, interest rates were soaring to the highest level in 40 years. Stevens, as a result. was caught in a classic fiscal squeeze: the people he'd borrowed money from wanted it back immedi-
ately: the people he'd loaned it to didn't have to repay it for years.
With interest rates at record levels, selling out his NHA mortgages would have meant taking a whopping loss. The only alternative was to borrow more money, in the hopes of staying one jump ahead of the credit squeeze until interest rates came down again. For Stevens, borrowing money was the equivalent of borrowing time.
Within a week of that June 25 meeting, he and Coyne had worked out a new deal with BNS that gave them cash, but at much greater cost. Stevens says the bank agreed to buy $10 million worth of NBA mortgages from BIF. at a price that would yield seven percent. If BIF chose to buy them back (which it did later that year) they’d have to pay a price that would yield the bank eight percent.
An attaché case full of money—and only a minute to spare
BNS officials regard the deal as an almost magnanimous attempt to bail out a colleague; but Stevens today regards it as extortionate. He estimates the BNS deal cost him $200,000 more than the going rate for short-term money.
Stevens is also embittered at his alleged treatment by the Toronto-Do-
minion Bank. He says it refrained from extending further credit and, Stevens says, even bounced York Trust cheques on several occasions. “That was when we had $250.000 on deposit with Toronto-Dominion,” he says. “It’s about the worst thing that can happen to you in the banking business.”
He also says Toronto-Dominion gave him exactly 60 minutes to pay off a well-secured $32,000 personal loan. Stevens and his wife arrived one minute before the deadline, carrying their money in a black attaché case.
As the crisis deepened, Stevens’ relations with the banks—which were never chummy — deteriorated to the point where the banking Establishment regarded him with a feeling not far from actual physical loathing. It wasn’t so much that he’d challenged the fiscal Establishment, or even that he'd got into deep trouble in the process. Mostly it was because Stevens, then as now, simply will not keep his mouth shut.
In public statements, he continually attacked the more entrenched aspects of the system. He complained to parliament of his treatment by the banks and even—this is unforgivable —suggested that if parliament retained the six-percent interest ceiling on loans, the banks could still make money.
The Great BIF Liquidity Crisis continued for 20 months, with Stevens scuttling around from bank to bank —in Detroit, in Texas, in New York as well as in Canada—desperately attempting to relieve his group’s chronic cash shortage. Partly through Coyne’s intercession in Ottawa, Central Mortgage and Housing Corporation agreed to extend York Trust a handsome line of credit on the security of the group’s NHA mortgages. At one point, York Trust owed CMHC about $23 million—money that Stevens was always reluctant to borrow, since it cost him eight percent. Instead, he preferred to appeal to the public for the money that the banks refused. York Trust launched a frantic and expensive branch-opening campaign in the fall of 1965. When their competitors offered six percent, York Trust raised the bidding to 61/« percent. and threw in a free gift besides. York Trust took in $6 million that autumn, and another $2 million in January.
Stevens stayed outwardly cool during the crisis. But James Coyne, his most visible associate, did not. As John Diefenbaker had learned in 1961, Coyne is a prickly, unpredictable, highly emotional man who’s always seemed anxious to convey that he’s somehow more pure than anybody else. In Ottawa, one of his nicknames was Jesus Christ.
As the credit squeeze tightened, Coyne grew increasingly remote from the problems that beset Stevens in Toronto, and concentrated on his role as president of Westbank. “I got the impression,” says one person close to the BIF group, “that he wanted to wash his hands of the whole BIF mess and retire to run his own little bank in Winnipeg.”
The impression was largely accurate. Coyne believed that if Westbank were to become the independent, regional institution that he’d promised parliament, it couldn't accept the domination of any single financial group—even if that group happened to own a majority of the voting shares. As he once told Stevens, “BIF is just another shareholder as far as I’m concerned.”
Stevens found this view deeply unsatisfactory—and became less and less enchanted with the man who espoused it. He got angry when Coyne invested seven million dollars worth of Westbank funds with what Stevens deemed to be insufficient authorization. He got annoyed by the amount of time Coyne seemed to be spending at his summer cottage at Lake-of-theWoods. And he got disgusted when Coyne asked that the group buy back his personal holdings in BIF group shares for what he'd paid for them. "He wanted us to buy him out at cost,"
Stevens says bitterly, ‘‘but he couldn't have cared less about the other shareholders.''
It was plain that an open split was coming.
When it did, it came with explosive force. On February 1. Coyne was in Toronto for directors’ meetings of BIF and York F a m bton Corporation Ltd., the BIF holding company that controls York Trust. Stevens arrived at the meeting elated. After 20 months of fund-grubbing, he'd finally hit pay-dirt. The New'
Jersey - based Meadow Brook Bank was willing to give BIF a $2.5 million line of credit.
W. J. Mindlin, BIF's man in New York, attended the meeting to give details. Coyne, chairing the meeting, sat at one end of the long table in BIF's cramped third-floor boardroom. Stevens, sitting beside him, was elated. But as Mindlin told of t h e negotiations w i t h Meadow Brook, Coyne grew more and more agitated. According to several people w'ho were there, his hands trembled and his face turned pale.
Suddenly he jumped to his feet, shouting at the top of his voice. “You've sold us out to the Yankees.” he said. “Do you know what you've done?” he shouted, pointing his finger at Mindlin. “You’ve ruined the name of a Canadian financial institution!”
Then Coyne rushed from the room. At least two witnesses say he was in tears. (Coyne denies it.
“I've been in tears on several occasions,” he says,
“but that wasn’t one of them.”)
Back in Winnipeg two days later, Coyne brought the fight into the open. In a press release he announced his resignation as chairman of BIF and York Lambton, and charged that Stevens had (a) tried to sell Westbank to the Americans, (b) tried to borrow money from Westbank for BIF and (c) had failed to pay $1.45 million of the $6.5 million which BIF had subscribed for Westbank shares.
The public results are well known. Both men went to Ottaw-a to appear
before the parliamentary finance committee, w'hich quickly decided that the dispute was an internal personality clash that had nothing to do with parliament. Westbank’s regional-minded board of directors, at a meeting a w'eek later, supported Coyne’s stand and turfed out Stevens as chairman.
That's when Stevens’ closest associates started forcing him out. Late last January. John Deacon, one of BIF's chief underwriters and chairman of the Toronto Stock Exchange, had proposed that Stevens turn over
his controlling shares to a voting trust — thus disassociating him from management and, presumably, removing the stigma of untouchability that had dogged BIF since the previous year. Within a few' weeks, the voting trust had assumed ritualistic importance; if only Stevens would sign over his shares, the crisis would be over. Stevens resisted the idea for weeks, and. he says, “the pressure was fantastic.” But he finally signed. And when he did, he says, “They jumped on it just like a bunch of starving
dogs.” (The four trustees, naturally, have a different story; but they won't discuss it in public.)
Now that he was shut out of management. Stevens started looking for a buyer for BIF — a buyer who could close the deal in a hurry. He was working against a deadline: York Lambton Corp. ow'ed West bank $1.45 million in funds it had promised to pay for the bank's shares. Some analysts say that if the subscription hadn't been met. BIF would have collapsed. Stevens takes a less urgent
view; the worst that could have happened. he says, is that he would have been forced to wind up the bank.
He found his buyer in Marc Masson Bienvenu, a 35-year-old Montreal financier whose great-grandfather was the first French-Canadian millionaire. “My family w'as in banking for four generations,” Bienvenu likes to tell people—and the message is fairly clear that Stevens’ family wasn’t.
Bienvenu is an aristocrat. Fie has the seigneurial air of a man twice his age and with twice his money. He also
has a lordly disdain for minor conventions. He shaves his scalp along with his chin every morning, reasoning that being utterly bald eliminates the necessity of patronizing barbers. He happens to like potato soup and ginger ale for breakfast and, on trips out of town, raises hell with room service if they won't deliver it. He also happens to like squirrels. They hang around the bedroom of his mansion in Dorval. dozens of them, waiting for handouts. Bienvenu distributes peanuts to these squirrels as though he were handing out foreign aid. He goes through a 200-pound sack of peanuts every month, which works out to more than a ton of peanuts every year.
Today Bienvenu runs an investment company called La Corporation Foncière de Montréal, and works closely with three other St. James Street whiz kids — Aubert Brillant. T' r i d o I i n Simard and Jacques Melanqon. They are not formally partners, but something much handier: they're like brothers. They’ve been known to lend each other $250,000 or so. no questions asked, as casually as you'd lend a buddy five dollars until payday. Their companies control Quebecair. dozens of factories and apartment buildings, four square miles of Laurentian real estate (including a lake named after Bienvenu's great-grandfather), two art galleries, the huge Simard-Beaudry construction complex, and a lot more.
Stevens heard about Bienvenu through a Montreal associate named Lome Webster. On Sunday, March 5 — only 12 days before he had to pay Westbank $1.45 million that he didn't have. Stevens phoned him — he caught him at lunch in the Filles du Roy restaurant in Old Montreal. They met that same night in New York's St. Regis Hotel ( Bienvenu had appointments in New York on Monday morning) and quickly agreed to work toward a deal. The following day, a lawyer and two of Bienvenu's accountants started going over BIF's books in Toronto; Stevens hid them in the library of his law office, one floor above the floor BIF occupies at 48 Yonge Street.
On Wednesday, Stevens heard that Sam Berger, a Calgary businessman, w'as interested in buying into the group, but it didn't look like a serious nibble. Bienvenu was then keeping further appointments in Paris. And so Stevens, Phil MacDonald and a third BIF executive named Donald Tigert flew there that same night.
The three days of bargaining that followed was a contest in endurance.
What next for Sine Stevens? He’d like to start another bank
They all stayed at the Bristol Hotel on the Rue St. Honoré, and seldom got more than four hours' sleep at night. Bienvenu would keep other appointments during the day. In the evenings the BIF haggling would begin, and adjourn only when Bienvenu — who was on the losing end of the time difference — couldn't stay awake
any longer. "I was in Paris ten days,” says Bienvenu, “and I only ate outside my hotel room three times."
By Sunday they were close to a deal. I he Stevens group went to the races in the Bois de Boulogne and, that afternoon. Bienvenu received word that the financing he needed had finally come through. To this day, he
hasn't revealed who his secret backers are — he says there are none — but speculation has ranged from the Bronfman family to the Vatican.
Then Stevens, Tigert and Bienvenu’s lawyer flew back to Toronto to work out the details. MacDonald followed Bienvenu to his house in Bermuda, and spent several days lounging
on the beach, standing by to act as an on-the-spot expert in case hitches developed. In Toronto, the lawyers moved in. Twelve of them w'orked until 5 a.m. Wednesday morning on details of the sale — and went at it again the following night. At five a.m. on Friday, March 17, just a few' hours before the Westbank deadline, the deal w'as completed. Stevens w'ent home for an hour's sleep, then caught a plane for the Westbank meeting in Winnipeg. He had the $1.45 million — a lawyer had flown to Winnipeg with the cheque the previous day — but he no longer owned British International Finance. “It's kind of a pity,” says one of his associates. “He spent ten years building a machine that no one’s ever seen in this country before, and then he dribbled it all away.”
What went wrong? Stevens grew too fast. Expansion became a goal in itself — “He kept telling us about his $130 million group,” says Bienvenu — “and it didn’t seem to bother him that it was losing millions.” Also, he tangled with James Coyne, the White Knight of Winnipeg. Both Bienvenu and John Diefenbaker have learned that this can be a dangerous occupation.
But Stevens’ real error was to sin against orthodoxy. He challenged not only the methods but the style of the existing banking Establishment. By promoting trust branches like supermarkets, he demonstrated that the principles of competition still apply to banking — a proposition that the eight big chartered banks have not always been quick to embrace. ( Now. with the new bank act revisions in effect, they’re embracing it with a vengeance. )
Stevens acknowledges his tactical errors, but he's never been able to grasp the magnitude of his essential heresy: his temerity in challenging the big banks. “1 keep asking people, ‘What's wrong? Am I crooked? Did I rook anybody?’ and they assure me that, no, nobody's saying I'm a crook. So what's wrong? They won't tell me.” What Stevens just can’t realize is that, if you're in the money business, attacking the big banks is the fiscal equivalent of bad breath.
Perhaps because his best friends won’t tell him. Stevens doesn't regard himself as finished. He escaped from the BIF debacle with his personal fortune intact, and now he’s planning ways to invest it. He’s looking at real estate and he's looking at industrial companies and, of all things, he's hoping to start another bank! Bloody but unbow'ed!
"It’s going to be a small merchant bank, and there'll be little public financing. There'll be none of this bloody nonsense about regionalism,” he says.
In a way, it’s a happy ending. York Trust is a sound concern once again, under the management of Alex Crate, who has the confidence of the Ontario government. Government-sponsored deposit insurance, a by-product of the crisis, is in operation—which means the money you deposit in any bank, loan or trust company is safer than it ever was before. And Sinclair Stevens, his innocence as unshaken as ever, is still trying to crack the banking Establishment. The human spirit triumphs! Capitalism lives!