THE BANKERS PART I
Measuring the power of Canada’s banks and the very private men who run them
PETER C. NEWMAN
There are some streets in the world where what you think about when you’re walking down them is Money. Only that. One of them, of course, is Wall Street and another is Threadneedle in the centre of the City in London and the Money you think about on each of those streets is very different.
On Wall, you think of fast money, conglomerate money, money talked about in aggressive voices by men with wellbarbered necks drinking Scotch straight up in Oscar’s bar around the corner from Lehman’s Bank. And on Threadneedle what you think about is discreet money being courted behind the narcissus in the window boxes and talked about in biscuit-colored Bentleys driving up from Kent and Surrey.
On a grey street in downtown Toronto — the long block of King running west from Yonge to just beyond Bay — you think of yet another kind of Money: careful, Canadian money. Money saved up by high-school principals, widows with rockers on their verandas, retired railway engineers. Money guarded by canny men with tellers’ eyes. Canada’s Bankers. The men who run the sturdiest banking system in the world and exercise more financial power than anybody else in the country.
In that single block on King, around the corner from the wilder reaches of the brokerage houses on Bay Street, are massive buildings belonging to the Big Five Canadian Banks: the head offices of the Canadian Imperial Bank of Commerce, the Bank of Nova Scotia and the TorontoDominion Bank as well as the chief regional operations of the Bank of Montreal and the Royal Bank, whose headquarters are in Montreal but whose business is centring more and more in Toronto.
The wind blows down that block as though through a tunnel, and just after high noon every weekday, as the typists swirl by in shiny boots and eye paint, black limousines with tinted windows nose onto it, chauffeur-driven, miraculously immune to parking tickets. Out of these cars step corporate men on their way to carefully pry some of the careful money out of the careful bankers over lunches that are held in private dining rooms and buzz with phrases like “extending lines of credit” and “balancing debt equity ratios.” What the corporate men acknowledge by coming to this block (and to blocks
not unlike it in Vancouver, Calgary, Winnipeg and especially Montreal) is the economic clout of the bankers. Because they control what is by quite a wide margin the largest pool of private investment capital in the country, the men who run the banks strongly influence and are affected by every fluctuation in the Canadian mood, every rustle in the nation’s economy, every nuance in its political life.
The nine Canadian chartered banks — the Big Five, plus the Banque Provinciale and the Banque Canadienne Nationale (operating largely in Quebec), the Bank of British Columbia in Vancouver and the New York-controlled Mercantile Bank — together have assets of more than $50 billion. This is an amount of money so enormous that theoretically, if it were marshaled in one sum, it could pay back all the foreign money invested in Canada. The five biggest Canadian banks are impressive even in an international setting, ranking among the 50 largest banking institutions in the world, with the Royal coming eighth.
It is the very size and concentration of the banks that have helped make the Canadian banking system the strongest and safest in the world. (There hasn’t been a bank failure here since 1923; yet in the U.S., banks still fail at the rate of 25 a year.)
There are more bank branches (6,500 at latest count) than taverns in this country and Canadians write four million cheques, money orders and drafts every business day on their 20 million accounts. This makes us'among the biggest consumers of banking services in the world and, in terms of per capita savings, among the thriftiest people on earth. (When you' think of France, you visualize sidewalk cafés; when you think of Greece, you remember ouzo dives; if you’re trying to characterize Canada, you’d do well to think of banks.)
Small wonder, then, that the senior bankers, the chairmen of the Big Five who set the tone and policies for the whole system, tend to think of themselves not as being in business but as having a calling. As the self-styled custodians of the free-enterprise philosophy, they view the business ethic as a beneficial discipline, foreordained to reward
the worthy and the able. The really first-rate bankers identify so totally with their work that they regard their professional decisions as genuine extensions of personal feelings. This leads them to the conclusion that everyone enjoying the benefits of Canadian society should have a similar outlook. William Nicks, late chairman of the Nova Scotia, advanced the theory to his bank’s annual meeting in 1970 that paying income tax was good for the poor. “The objective of removing large numbers of people from the tax roll is contrary to the long-run interest of a participatory society,” he said. “No matter how small, the act of filing a tax return and paying a levy helps to bring home the fact that nothing is free and that new services mean new taxes.” may be calling, they can always get through on the telephone.
Serene in the security of their faith, the senior bankers discharge their power with all the self-conscious virtue of representative elders at a Presbyterian synod. Except for compulsory attendance at annual meetings of shareholders, the odd appearance before parliamentary committees and rare speaking engagements, they are intensely private individuals, distinguished by two main passions — the first for the efficient management of the funds entrusted to them; the second for anonymity.
This aura of self-imposed mystery is based in part on the fact that the commodity the banks handle happens to be money, and in a society that measures most things by monetary standards the bankers are automatically endowed with great power, a situation that makes them uncomfortable. “Power is something political,” says Earle McLaughlin, who as president and chairman of the Royal is the nation’s most important banker. “What we have is responsibility.''’
Responsibility is a concept the bankers understand. It’s a middle-class virtue and, despite their exalted place in the country’s fiscal firmament, they are middle-class men and proud of it. Fitted more by temperament than by birth for their high station, only one of the five men currently in command of the Canadian banking system went beyond high school and all have devoted their entire working lives to the institutions they head. During the Twenties and Thirties, when the men who now run the banks were growing up in rural English Canada, banks were the only passport to the outside world for bright boys whose parents couldn’t afford to send them to university. “The old story in New Brunswick,” says Earle McLaughlin, “was that a young man could either cut wood, grow potatoes or join the Royal.” McLaughlin himself is the only Big Five chairman to have a university degree, though he kept that fact well concealed during his long climb to the Royal’s chairmanship.
In a way, the bankers are the primitives of Canadian business. They do not believe in nepotism. Unlike the investment dealers, underwriters and stockbrokers who perpetuate the influence of established wealth and the right private schools, the bankers function as an elite without elitist credentials or shibboleths.
The top bankers’ lifestyle is muted. Although the salaries of the bank chairmen range between $150,000 and $200,000 a year, they seldom indulge themselves in visible luxuries and are piously outraged by such ostentations as long yachts, young mistresses, thctfoughbred horses, platoons of servants and dollar cigars. They tend to take their pleasures on golf courses and at summer cottages, very much as they would if they were still local branch managers.
The authority they possess is very real but it is a relegated form of power, in the sense that it remains an inherent part of a position rather than an individual. Aware of this distinction, they move softly, most often exercising their leverage in a negative way through the ability to withhold favors. Just as their talents lack any definable doctrine, so their passions often seem hermetically sealed off from everyday concerns. It is enough for them to know that no matter who they / continued on page 77
continued on page 77
MONE/ LOOKS: CANADIAN BANKINGS BIG FIVE
POSITION: Chairman, Canadian Imperial Bank of Commerce; established 1867; assets $11.4 billion; number of branches 1,569; Canada’s second largest bank, with particular strength in Ontario and the West; specializes in large corporate accounts and mining loans.
CAREER: Joined the bank as a 14-year-old clerk at Cobalt, Ont., after leaving high school; moved to head office, 1945; appointed president, 1956. Has spent his entire 47-year career with the Commerce.
PROFILE: Aloof, but unlike most bankers has been seasoned by his life experience and holds deep inner convictions about the joys of the free-enterprise system.
LEISURE ACTIVITIES: Golf, duck hunting and salmon fishing.
LAST BOOK READ: Mediterranean: Portrait Of A Sea by Ernie Bradford.
LAST FILM SEEN: No time for films.
Last play he attended was Hadrian VII.
TYPICAL QUOTE: “Canada has always been undercapitalized because most of the industrial development here took place during and after World War II, when the welfare state had started. In the U.S., on the other hand, most of the growth took place during the 19th century when large pools of private capital could still be collected. Here, the large pools of capital have had to be provided by financial institutions, particularly the banks, rather than individuals.”
PRIVATE OFFICE: Small office on seventh floor of the Commerce building in downtown Toronto; furnished to look like the study of an expensive home with chandeliers and three windows of 24 panels each.
POSITION: Chairman and Chief Executive Officer, Bank of Nova Scotia; established 1832; assets $7.1 billion; number of branches 896; Canada’s fourth largest bank; specializes in consumer loans with heavy emphasis on international business.
CAREER: Joined the bank in Winnipeg as clerk at 17 after leaving high school in 1923; moved to head office, 1952; appointed president, 1958. Had spent his entire, 49-year career with the Bank of Nova Scotia.
PROFILE: intensely private, totally self-made individual who met strangers with stately politeness and never seemed quite at ease outside his office.
TYPICAL QUOTE: “You’ve probably heard Jack Benny say on television: ‘There’s
no business like show business.’ I say he doesn’t know what he's talking about. I feel there’s no business like the banking business. In my book, there no opportunity like it.”
PRIVATE OFFICE: Smallest of the Big Five bankers on the sixth floor of the Bank of Nova Scotia building in downtown Toronto; furnished with elegant antiques; has only two windows; usually kept the drapes drawn so he didn’t have to look at the Canadian Imperial Bank of Commerce headquarters across the street. Decor is a resolutely neutral grey-green.
As this issue went to press, we learned of the sudden death of William Nicks. At this writing, a successor has not been named.
POSITION: Chairman and President, The Royal Bank of Canada, established 1869; assets $12.9 billion; number of branches 1,366; Canada’s largest and most aggressive financial institution.
CAREER: Joined the bank in 1936 as a teller in Toronto after graduating with a BA from Queen’s (Economics and History); moved to head office, 1945; appointed president, 1970. Has spent his entire 36-year career with the Royal Bank. PROFILE: Stomps through each day with the courtly enthusiasm of a politician who is continually announcing popular legislation and believes the people will love him for it. He commands respect.
LEISURE ACTIVITIES: Some golf and curling, but claims: “I can’t really say
what I do in my leisure, because I don’t even know how to spell the word.”
LAST BOOK READ: Pierre Berton’s CPR history, The Last Spike.
LAST FILM SEEN: “I haven’t seen a movie in years.”
TYPICAL QUOTE: “I don’t believe that I have any power at all, though I do have a lot of responsibility. I’m frightened of losing business. Being a banker you can’t exercise any power; all you can do is fulfill the responsibility you feel to your depositors, shareholders, staff and the public at large.”
PRIVATE OFFICE: Modern but relatively modest; on the third floor of the bank’s headquarters in Montreal’s Place Ville Marie; has desk-mounted switches which electronically close and lock or unlock and open all access doors and move the drapes across his six windows.
POSITION: Chairman and Chief Executive Officer, Bank of Montreal; established 1817; assets $10.1 billion; number of branches 1,121; Canada’s third largest bank; currently in the process of major modernization and expansion.
CAREER: Joined the bank as a clerk in Toronto after leaving school at 18; moved to head office, 1953; appointed president, 1959. Has spent his entire 41-year career with the Bank of Montreal.
PROFILE: Smoothly compelling personality with a bowler-hat air about him. Deceptively mild in manner, he is presiding over an internal revolution at his bank, designed to regain its former predominance in Canadian finance.
LEISURE ACTIVITIES: Golf and gardening.
LAST BOOK READ: Inside The Third Reich by Albert Speer.
LAST FILM SEEN: “It has been a long time since I have seen a motion picture and I must confess that the majority of films advertised today hold no interest for me whatsoever.”
TYPICAL QUOTE: “We handle other people's money, the money of our depositors, and we lend it to another group of people, our borrowers, and we have to make sure that we perform a useful service on both sides, by marrying people who have surplus funds to those who need them.”
PRIVATE OFFICE: Large chamber at the bank’s Montreal head office with lights made to look like old gas lamps, an original Krieghoff painting of the bank’s first head office built in 1817, and three windows set in cedar-paneled walls.
POSITION: Chairman and President, Toronto-Dominion Bank; established 1855; assets $6.5 billion; number of branches 790; an imaginative, largely urban bank with emphasis on mediumsized firms and depositors; fastest growth and diversification among the big five.
CAREER: Joined the bank at 15 as a clerk in Victoria after dropping out of high school; moved to head office, 1949; appointed president, 1960. Has spent his entire 45-year career with the Toronto-Dominion.
PROFILE: Manages to be warm without ever seeming casual; the quiet extrovert of the Canadian banking community. His social conscience earns him a special place among Canada’s bankers.
LEISURE ACTIVITIES: Fishing, hunting, golf, tennis and swimming.
LAST BOOK READ: The New Anatomy Of Britain by Anthony Sampson.
LAST FILM SEEN: No movies, but enjoyed Henry VIII and Forsyte Saga on TV. TYPICAL QUOTE: "Banking is so competitive that you never feel you have the life-or-death decision on any project, because you know that if you can’t tailor your program to meet a customer’s needs he’ll go elsewhere. Perhaps my greatest satisfaction comes from working with companies that have come on bad times and seeing them become prosperous again.”
PRIVATE OFFICE: Large, modern chambers on the eleventh floor of the towering Toronto-Dominion Centre in Toronto, decorated with original Canadian paintings and Eskimo sculptures; has 14 windows.
THE BANKERS from page 22
Still, the kind of man who rises to the top of the big banks holds very definite, if resolutely non-eccentric, views. James Muir, the late chairman of the Royal, was probably the prototype. William Zeckendorf, the New York real estate developer who had a great deal to do with Muir during the financing of Zeckendorfs Montreal ventures, once commented: “Jim kept things simple; if you were his friend, you could do no wrong; if you were his enemy, you could do no right. And if you were worth considering at all, you were in one category or the other.”
In an era of participatory democracy and the fragmentation of institutional power structures, the banks stand apart. They operate like enormous pyramids, with authority flowing subtly to places and projects where it can most profitably be utilized, but subject always to the final word from the man at the top. Employees at the various levels seem to know instinctively what that man wants. “Each of the major banks,” says R. G. D. Lafferty, a Montreal investment counselor, “has become a power base for the senior executive officer, and these of-
ficers have developed legal and constitutional techniques to insulate themselves from those who might usurp or seek to challenge their positions.”
The top bankers, the men who hold the system together and perpetuate its mystique, operate from offices furnished like Forsyte Saga drawing rooms, meant to convey the impression that instead of being men of power they are really the guardians of other men’s fortunes. They seldom step outside their buildings, even for lunch, preferring to entertain in the bank’s own dining rooms which serve discreet cocktails followed by carefully prepared meals. (Quiche Lorraine is a specialty at the Commerce; the Royal’s chef roasts the best salted almonds in the country.) It is here, away from the noise and confusion of everyday commerce, over silver meat platters and crested china, that the big-scale business of banking is transacted, the business of extending credit to large corporations.
Corporations are, of course, very different from you and me. An individual can seldom get a loan for more money than he is worth. But an aggressive, growing corporation is frequently able to borrow considerably in excess of what its sales and assets
might otherwise justify, providing it persuades the bank that this new money will earn enough extra profits to repay the loan.
Bank lending practices are constantly changing to reflect Ottawa’s monetary policies as well as each bank’s analysis of credit rates and risks. All of the banks have field specialists who can provide fast assessments of lending proposals. In Calgary, for example, Gordon Lennard, the Commerce’s able regional vice-president, maintains a group of geologists who man a huge map room with 65,000 pins that show the exploration patterns of every Canadian petroleum company for the past 20 years. The Toronto-Dominion has tended to specialize in real estate development and the needle trades, but all banks maintain experts in nearly every corporate lending category.
Personal loans, started by the Commerce in 1936, but never vigorously followed up until the Nova Scotia began to push them in the late Fifties, have added a new dimension to the banking system. In fact, the banks now operate at two separate levels: their hushed head-office corporate dealings; and the razzle-dazzle merchandising of personal loans. In 1952, only 15% of consumer credit came from the banks; now they supply nearly half and in the process people and sunlight have invaded the banks. Bank decor has been modified to turn borrowing from a Leacock nightmare into a mildly sensual experience. (If you’re inflamed by Teddy bears, bank at the Royal.) The banks have been tripping all over themselves in promoting their services, and the effect has been to make it seem faintly immoral not to have a loan.
A bank employee’s status has little to do with his title or seniority: the important thing is his “discretional limit” — the amount of money he can lend on the basis of his own signature. In medium-sized branches the manager might follow what’s known as the “five and 10 limit.” (This means he can lend up to $5,000 on his own signature without collateral and a further $10,000 on the basis of a collateral guarantee.) At the main big - city branches, managers may exercise discretionary lending powers of up to $250,000 and regional vice-presidents can go as high as $500,000. Anything more than that goes through to head office and loans of more than one million dollars must be approved not only by the bank’s chief executive officer but by the board of directors. All of the banks are decentralizing their operations, both to give men in the field more incentives and to get a fast turnaround on local loan applications.
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THE BANKERS continued
The Toronto-Dominion has given its branch managers the greatest latitude. “We get a better feel for local conditions that way,” says Allen Lambert, the T-D’s chairman. “Our people know that they’ll be backed up by head office, even beyond their limits, providing the loan is worthwhile.”
Loans that go sour (they’re referred to as “impaired”) can get the man who made them into trouble; he’s not
asked to make good the damages but he has, in banker’s language, “blotted his copybook” and that can mean a dead-end job or delayed promotion. The highest tribute a bank can pay to an up-and-coming credit man is to appoint him to a branch that operates in the needle trade areas of Winnipeg, Toronto and Montreal, where small businesses often go bankrupt. Survival there means certain promotion.
Salaries are tied in directly with the credit size of a branch; thus managers of shopping-centre banks, where there are heavy deposits but not much big lending, are paid less than the downtown managers who handle business borrowings. Branch managers’ salaries range between $8,000 and $35,000 a year, not including fringe benefits. These can be considerable. For example, when E. A. Royce, who spent 41 years with the Bank of Montreal before being appointed Chairman of the Ontario Securities Commission, was manager of the bank’s main branch in Ottawa, his salary was $9,000 but he also got free membership in the Rideau Club, use of a chauffeured limousine, a $3,000 expense allowance and a Rockcliffe house for which he was charged a rent of only $150 a month. Because his cash income was not high, he had quite a substantial head office loan. (Bank employees are allowed to borrow up to $25,000 a year at approximately half the going rate.) In his final year at the Montreal, as one of its deputy general managers, Royce was getting $40,000 in salary, $13,000 in bonuses and $18,000 in expense accounts, plus the subsidized use of a bank-owned house.
This is a fairly typical arrangement. Contributory pension benefits are generous, amounting to about 70% of salaries. The Royal has a compulsory retirement age of 60, creating better morale through faster opportunities for promotion. Its annual personnel turnover rate (31% for women and 9% for men) is substantially below the industry’s average.
Branch managers due for promotion are invited to the bank’s annual meeting where head office executives can look over their wives to see if they could back their husbands up in more senior postings. Two reports are made on every employee annually, one by his supervisor and one by a bank inspector, categorizing his performance according to a rigid grading system. Hardly anybody is ever fired, except for embezzlement, heavy drinking on the job or trying to organize a tellers’ union. Banks even tell their staffs what to wear. A Commerce employee handbook for women tellers states: “Clothing should be simple in style, properly fitted and coordinated in colors; dresses that are too tight or too short are not suitable, nor are bulky sweaters or faddish stockings. Basic jewelry is acceptable, but items that are extreme in style, or designed for evening wear (such as bangles, oversized earrings and most sparkling jewelry), should be avoided. Plain basic pumps and flat shoes are preferred, and they always should be in good condition; casual or extreme styles, including moccasins, boots and sneakers, are undesirable.”
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THE BANKERS continued
The banks are careful to instill in their employees the same feeling that you get inside the hierarchies of the church or the foreign service: that to get to the top you have to start at the bottom and accept the many disciplines along the way. “You just have to live, eat and breathe banking if you’re going to be good at it,” says Dick Thomson, vice - president and chief general manager of the TorontoDominion.
Bankers tend to talk about being “in the service,” as if banking were an area of activity set apart from the strivings of ordinary mortals. At the Royal, employees even have to sign a witnessed oath of secrecy on joining and every twelve months, pledging not to disclose customers’ financial dealings. “We’re professional listeners, like priests in a confessional, and have to keep everything we hear in confidence, even when we’re in on both sides of a deal,” says John Coleman, the Royal’s deputy chairman.
The employee pyramid in the banks is so rigidly structured that when a young man first steps into a teller’s cage, he can clearly see his path ahead: to assistant accountant, to ac-
countant, to small branch manager, to head office credit representative or inspector, to large branch manager, to assistant general manager and perhaps beyond. (Actually most tellers now are women but their chances of getting to be more than an accountant are negligible unless they stay long enough to gain the necessary experience and are prepared to move around.)
There are some notable exceptions but most of the banks’ recruiting is still done in the high schools; and senior bankers continue to regard university graduates as potential troublemakers who ask a lot of questions and tend to be dissatisfied. Bank personnel managers are still on the lookout for those elusive “clean-cut” young men who once populated Canadian high schools. “The banks,” says Gordon Sharwood, a former chief general manager of the Commerce, “look for people who get high marks and have some aptitude with figures. But they don’t go after the aggressive sales-oriented guys who knock on the doors of IBM or Procter & Gamble. They usually end up with the solid, solemn, good citizen types, and if they get the other kind they don’t generally keep them very long.”
Things are changing though. Only a generation ago, young men were
virtually indentured to banks. They couldn’t marry without their branch manager’s permission and only after they had a savings account of at least $1,500 plus a $300 guarantee from their brides’ families, presumably so that they wouldn’t be tempted to embezzle in order to get married. It’s a symbol of the change sweeping the banks that Tom Hamilton, a young Royal Bank management trainee, recently took his financée to the observation roof of the Toronto-Dominion building while a plane he rented cruised overhead streaming a sign that spelled out: WENDY FOLLIOTT,
WILL YOU MARRY ME? LOVE, TOM.
(She said yes.)
No bank is changing faster than the Montreal, Canada’s oldest bank, which, until recently, considered itself an aristocratic institution and, according to one of its rivals, regarded Toronto “as some kind of a distant outpost with a sizable beaver catch.” The Montreal’s modernization started six years ago when it hired Fred McNeil (now its executive vice-president and chief operating officer), a former journalist who was responsible for reorganizing Ford of Canada. “There’s been a management revolution since the war,” says McNeil, “but banking stayed apart from it. Now, we are instituting many traumatic changes to establish a dynamic organization in which people can find fulfillment. You inhibit more people by a bad management than anything I know.”
“The average banker,” says R. M. Macintosh, deputy chief general manager of the Bank of Nova Scotia and very much a member of the new guard, “used to be thought of as just a good soldier. But it’s no longer enough. I know that in our computer and investment operations we’re beginning to attract a different sort of fellow, one who tends to question things. Some of the people in my departments speak to me in a way my colleagues think is shocking, because they contradict what I say in front of me. It may be insubordination but the result is that I’ve got a very strong creative staff.” Nicks, late Nova Scotia chairman, was dedicated to the principle of delegation. “I call it ‘delegating with a heart,’ ” he said. “The point is that if you give a fellow a job you have to also give him enough authority to do it, at the same time recognizing that he might make the odd mistake.”
There is not exactly a generation gap in banking but there is a gap where a generation should be. The current chairmen of the Big Five have enjoyed remarkable longevity (had this article been published 10 years ago, it would have been accompanied by photographs of exactly the same five men). Because there was little bank recruiting between 1935 and 1945, the banks are missing a generation of potential leaders. Instead, a whole new group of dynamic, relatively young secondand thirdechelon executives is now being groomed for an eventual take-over. At the Toronto-Dominion, the obvious heir apparent is R. M. Thomson, the relaxed and witty vice-president and chief general manager, a graduate of engineering at the University of Toronto and the Harvard Business
School and the only senior bank executive in the country who doesn’t always wear white shirts.
At the Nova Scotia, the men moving forward include Arthur Crockett, a public relations minded former naval officer; R. M. Macintosh, a cum laude Cambridge graduate and one of the few holders of a PhD in the upper echelons of Canadian banking; and André Bisson, a talented young Harvard graduate who formerly headed Laval’s School of Business and was founding director of the Institute of Canadian Bankers.
At the Commerce, Page Wadsworth, the most charming banker in
Canada, is closest to the top spot, with Russell Harrison and R. D. Fullerton as the most likely successors to the chairmanship. At the Montreal, Fred McNeil and Hartland MacDougall seem to be the main contenders. At the Royal, R. C. Frazee, Jack Finlayson or William Moodie may get the tough assignment of succeeding Earle McLaughlin.
“But don’t expect a revolution when we take over,” says one of the new banking princes. “Our banking system is good for the country and good for us. We’d be mad to change it.”
NEXT ISSUE: HOW THE BANKS WHEEL AND DEAL