Acclaim—even within the clubby and often low-key confines of Toronto’s business establishment— has a way of searching out star players. No one is more aware, or chagrined, by that fact than James McCutcheon and his brother Fred, multimillionaire businessmen who—despite their best efforts—have found themselves at the centre of increasing attention from colleagues and the public alike in the wake of their latest venture: the acquisition of a controlling share in Traders Group Ltd., a venerable $3.6-billion financial empire.
By takeover standards, the February deal was small. For an estimated $6 million the brothers bought out the 26-percent interest of clothing store tycoon Richard Chater, who recently died, in Traders’ parent, Canadian General Securities Ltd. (CGS). (Added to their existing shares, the deal won them control of CGS.) But the implications of the deal are far-reaching. Among Traders’ assets are Guaranty Trust (Canada’s eighth-largest trust company) and a slew of insurance, finance, real estate and other concerns, all comprising the llth-largest financial company in the
Last week, speculation increased that Traders’ future prospects will brighten under a soon-to-be-revised Trust Company Act that will give such companies a wider share of the money market. But the McCutcheons were clinging to their desire for low profiles. As James put it,
“We’re not around to develop personality cults.”
That may prove increasingly difficult because of the McCutcheons’ growing reputation within the business community. Like most McCutcheon family undertakings, the Traders takeover was as demure as a nodded bid at an art auction. Nevertheless, it represented the coming of age not only of Traders— Alan Marchment, its patrician chairman, becomes president of the Trust Company Association of Canada in May—but, more important, of the second-generation financial dynasty sired by the late Wallace McCutcheon. The senator from Gormley, Ont., was one of the late Bud McDougald’s founding Argus partners, and he would have approved—not only of the way his boys have parlayed an original $3-million investment in CGS into control of Traders’ $3.5-billion assets, but of the way they hold their empires together.not so much with money as with loyalty to their establishment friends, fn a world loud with capitalists shouting for the limelight, they are the ultimate inside players.
They can afford to be. After their father’s death in 1969, the world opened up for the McCutcheon brothers as it only can for the children of a man whose tfetate is estimated to have been worth at least $35 million. (Susan and Barbara McCutcheon, his daughters, live in Toronto, and a third son, Douglas, now operates Rosedale Livery Ltd., a limousine rental service, after spending some time roving in the Caribbean.) James was a practising trial lawyer at Shibley, Righton and McCutcheon, a Toronto law firm, when, in 1971, he and Chater spent $6 million between them to buy 52 per cent of CGS from Acres Ltd. Acres was a notoriously aggressive engineering company run in the early 1970s by Norman Simpson and financial wizard Andy Sarlos. Initially, Chater and McCutcheon were a team. They agreed—in writing—to vote their shares as a block in all matters, even in the election of directors. But by 1981 Chater decided he wanted out, and months of negotiations resulted in February’s deal. Now, when not lawyering, James concentrates his analytic mind on Guaranty Trust and the insurance companies, whose chairmanship he is said to enjoy.
But it is Fred—a virtual party boy compared to his older brother—who has attracted the most acclaim from his colleagues. As Ralph Hedlin, a former Traders director put it, “If there’s one who’s going to follow in father’s footsteps, it’s Fred.” In 1969, when he was 29, Fred bought himself a seat on the Toronto Stock Exchange (TSE) for $125,000. The following year he helped launch Loewen Ondaatje & McCutcheon Co. Ltd. (LOM), a successful Toronto institutional brokerage firm. Then, he spent so much time at the TSE that in 1975 he was elected its chairman. “He is a financial genius,” enthuses Chris Ondaatje, a close friend. “I think we realized we’d never really keep him for [more than] two or three years.”
Ondaatje was right. In 1977 Fred left LOM and started Arachnae Securities Ltd., a one-man investment firm, and Arachnae Management Ltd., a computer company whose software Fred markets internationally. LOM still handles Arachnae’s retail stock sales, and McCutcheon and Ondaatje can be seen of a Saturday discussing mutual business interests or buying paintings. Ondaatje goes for Frederick Vernor’s work, while McCutcheon seems to prefer blowsy Homer Watsons.
The entire Arachnae operation—the word is Greek for spider, the spinner of webs—is run out of a bright, quiet office in the middle of tiny, private Buttonville Airport, 40 km northeast of Toronto. It was from this office, as a major shareholder of Patina N.V., Peter Bronfman’s corporate partner in his successful takeover of Brascan Ltd. in 1979, that McCutcheon bought 20,000 shares of Brascan on the London Stock Exchange at 4:30 a.m. in a strenuous effort to sidestep the TSE’s disclosure laws. Last September, when McCut-
cheon and Patrick Keenan, who runs his own family investment trust down the hall from Fred, sold out of Patino, the two friends pocketed well over $10 million. It’s the sort of deal that wins a reputation for brilliance.
Currently, McCutcheon and Keenan limit their Brascan holdings to large chunks of Brascade Ltd., the Brascan subsidiary that owns 40 per cent of Noranda Mines. McCutcheon still serves on the executive committee of Brascan’s board with his good friends Trevor Eyton, Brascan’s chief executive officer, and Jack Cockwell, its executive vicepresident. Or, if not there, perhaps he’s at the Stroller’s Club on Toronto’s Adelaide Street, or at the bimonthly dinners of Canyon-Beauporte Investments Ltd., a private club now worth, according to one member, well over $1 million. Fred handles the commodities portfolio. But when he isn’t thinking up new ways to make money for his associates, he
raises money for Conservative Leader Joe Clark, “to get rid of the government, like any sensible human being.”
Now, however, with tempers on depressed Bay Street wearing thin, some observers question the McCutcheon brothers’ judgment in buying Traders when they did. Guaranty Trust, its main subsidiary, is burdened with 25year term mortgages that pay only sixper-cent interest, while the company pays much higher current interest rates for the new money it borrows. As a result, last year was Traders’ worst since its incorporation in Winnipeg in 1920: income alone dropped 73 per cent to $2.6 million.
Other observers, however, think the McCutcheons are crazy like their father—that is, not at all. For one thing, the value of Chafer’s shares would never have been lower than it was in February. Also, the troublesome mortgages were maturing in two or three years and the company’s insurance
group was just coming out of the trough of the insurance industry’s four-year cycle. At the same time, roughly 60 per cent of the company’s assets were finally siphoned into short-term investments. Previously, that figure had been 35 per cent. That is why Fred McCutcheon now sees Traders as “a good, strong long-term investment with lots of possibilities—and some problems.” The senator from Gormley would have approved, but would he have been able to pull it off? With Traders assets well in hand, staunchly protected against takeover by the 52-per-cent share of CGS, the McCutcheon dynasty is secure in a way Argus Corp. almost was not, at least until Conrad Black flashed onto the scene. Having oneupped their father and his partners in matters of form, the quiet McCutcheon boys can now turn their attention to the question of dynastic originality. Will Traders remain a tightly held financial
conglomerate? (One that may not be in the consumer mortgage business, which Marchment swears is a thing of the past.) Perhaps. More interesting for a company with those huge assets and many branches is the model of IAC Ltd., the finance company that was reincarnated as Continental Bank. Could Traders survive the transformation from finance and trust company to chartered bank—a transformation most observers say trust companies will have to undergo if they are to survive the unstable economics of the times? On the windowsill in Alan Marchment’s pale blue office, next to the amphora on the floor, there is a bronze replica of the Traders Bank, an unrelated 1920s money lending outfit whose downtown Toronto headquarters stood a block away from Traders Group’s current headquarters. Imagine a chartered bank bearing the McCutcheon standard. That would be a feat that could not help but attract real notice.
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