COVER

A clouded western vision

ANDREW NIKIFORUK November 4 1985
COVER

A clouded western vision

ANDREW NIKIFORUK November 4 1985

A clouded western vision

COVER

Ever since the Great Depression the dream has been a simple one: the creation of western banks that would help prairie capitalists to prosper. The vision was the product of reality: Canada’s traditional banking system, dominated by Central Canadian banks, could not or would not—in the opinion of many westerners—address the region’s specific needs. But it was not until the economic booms of the 1960s and 1970s that conditions were right for regional banks and trust companies to grow—and more than eight firms were founded during those years. Now, with the collapse of the Edmonton-based Canadian Commercial Bank and the Calgary-based Northland Bank, the entire feasibility of regional banking is in doubt. Declared Alberta Consumer and Corporate Affairs Minister Connie Osterman: “The Big Five will end up stronger than ever. That does not give us warm feelings out here.”

When oil and wheat first became thriving industries over the course of the 1960s and 1970s the development created a demand for expansion money. But many Westerners found that they could not get the loans they wanted from national banks and trust companies based in Central Canada. And some businessmen who did receive loans complained of “high-handed treatment,” recalled University of Calgary economist Warren Blackman: “The Big Five would unilaterally shift money from a business’s deposit account to put against a loan—without consultation.

Demand: As a result, new westernbased financial institutions took advantage of the business expansion and the demand for money. One was City Savings & Trust, the predecessor company of Vancouver-based First City Trust Co. Now with assets of $3.06 billion, it was founded in Edmonton by the Belzberg family in 1962 because there were no locally based financial institutions to make residential and commercial loans to local businessmen, said company president Edward Daughney. And in 1976 credit unions in Alberta, Saskatchewan and Manitoba assembled $10 million to start the Northland Bank because their financial resources could no longer meet the growing demand for big loans from Western businessmen.

In Alberta, former premier Peter Lougheed actively promoted what he described as a “shift in the decisionmaking westward” that included the financial sector. As that province’s energy and construction sectors grew rapidly in the late 1970s, the demand for loans from western-based financial institutions increased. Said one western financial executive: “It was the lemming instinct. The conventional wisdom during the boom was universal: hydrocarbons are a nonrenewable resource and they can only go up. There was no prophet of doom.”

Plummetted: But in 1982 the west’s economic miracle ended abruptly. The world prices of oil, beef and grain plummetted. The demand for new housing, offices and industrial parks evaporated, and borrowers defaulted on their loans as real estate values collapsed by as much as 50 per cent. Banks, credit unions and trust companies became the unwilling holders of unmarketable homes, commercial buildings and acres of raw land. The casualties among western-based financial institutions were numerous: Edmonton’s Fidelity Trust Co., Vancouver’s Western Capital Trust and Regina’s Pioneer Trust Co. all failed between 1983 and 1985.

Rescue: Indeed, the collapse of the Northland and the CCB last month were only two illustrations of the growing problems of western financiers. Earlier, Alberta moved to stabilize the financial sector. In January this year the Alberta Treasury Branches guaranteed $85 million in preferred shares for North West Financial Corp., which in turn invested $25 million in its subsidiary North West Trust Co. Then, in March the Alberta government provided $105 million in loans to strengthen 44 of the province’s 138 credit unions, which were carrying $200 million in accumulated losses and $325 million in foreclosed real estate. And last month it gave 17-year-old Heritage Savings & Trust Co. six months to raise $6 million in fresh equity to qualify for a $10million rescue package.

Still, the dream of a financial industry to rival that in Central Canada has not entirely disappeared. Last month the Ghermezian family of Edmonton announced that it was opening a new Alberta-based financial institution, People’s Trust Co. It plans to open offices in Calgary, Toronto and Vancouver by the end of the year. And Edmonton-based Bank of Alberta—with assets of $100 million the smallest and most recently chartered western bank—is continuing with plans to open its first retail branch in Edmonton this month. The bank is 70 per cent owned by Albertans, but its largest single shareholder, with 10 per cent, is Japan’s Hokkaido Takushoku Bank of Sapporo. Said bank chairman Fred Sparrow: “Western Canada needs western-based banks.”

Still, because of the recent failures some westerners are wondering if their economies can ever sustain a strong regional financial industry. Noted University of Alberta financial economist Gordon Sick: “You can’t keep a dollar in Alberta by having a bank in Alberta. The money will move around.” But others disagree. Blackman said that with another economic upturn, there could once again be a strong regional financial base: “The test of a banking system is not if it fails, but whether or not it meets the needs of the business community.”

—ANDREW NIKIFORUK in Edmonton