Stuck with governmental restraints designed to keep them out of the lucrative “financial services” business, Canada’s Big Five banks are having a merry time breaking the intent of the Canadian laws by expanding their business abroad in a way that would clearly be illegal in Canada.
clearly be illegal in Canada.
The world banking business is exploding, with the institutions rapidly diversifying everywhere, it seems, except Canada. In a recent survey of international banking, the London Financial Times commented: “In places as different as the U.K., Finland and Japan financial markets are being opened up. In just about every country where the law allows it, banks are expanding into new businesses, such as securities or insurance.”
Canada’s Big Five have been very much a part of this trend. These entirely legal—and highly profitable—diversifications were climaxed recently when Orion, a subsidiary of the Royal Bank of Canada, purchased a major interest in Kitcat and Aitken, one of London’s largest institutional investment houses. Its 27 partners, who include some of the city’s most prestigious money men, are now working for Orion, and an application has just been filed with the Bank of England to allow the firm to deal in the “gilts” market—as the trade in U.K. government bonds is known. “We are doing overseas what we can’t do in Canada,” admits John Abell, Orion’s cigarchomping chairman and chief executive officer.
A graduate in geography from Oxford, Abell commuted to London from just outside Newbury in the English countryside. His father was a director of the Bank of England, and, even though he spent 27 years with Wood Gundy where he rose to the vice-chairmanship, the Orion chief executive has become much more international than Canadian. “I am aiming to keep Orion in the top league of world banking,” he told me during a recent visit to Canada, and he meant it.
Only two decades ago the Royal Bank was essentially a Canadian institution with a few branches abroad. Now, the Royal is an international bank based in Canada. (The Commerce is following suit with a bid for another London brokerage house, Grenfell and Colegrave. The other Big Five banks all own merchant banking operations outside the country.)
Under Abell’s able direction Orion has become one of the world’s leading merchant banks. In 1984 it ranked sixth in the number of international bond issues it placed ($39 billion), and in the first quarter of this year it topped the list as an originating syndicate according to the International Financing Review, with 141 new issues worth $18.5 billion. (Ranking second was Credit Suisse/First Boston Corp; next came Swiss Banking Corp., Merrill Lynch and
Morgan Guaranty Trust.) In this branch of finance, strength depends on placing power, and Orion has consistently placed more international securities than it has underwritten. Its dealing room is one of the most modern in the city and was the first to install an electronic optical coupon reader.
Originally formed in the early 1970s as a partnership by the Royal with five
of the world’s most powerful banks (the Chase Manhattan, National Westminster, Credito Italiano, Mitsubishi and Westdeutsche Landesbank), Orion became a wholly owned subsidiary in 1981 when the Royal bought out its partners.
Run by an unwieldy board of 45 directors, Orion manages a number of large offshore trusts and recently opened offices in Tokyo, New York and, of all places, Toronto. (Orion does massive Eurodollar financing for Ottawa as well as 18 other governments.) The company’s latest move is the founding of a new commercial bank with merchant banking capabilities in Australia, in partnership with the second-largest insurance company in the country, National Mutual Life Assurance.
Geoff Styles, the Royal’s senior executive vice-president in charge of international operations, claims that Orion did not get caught in some of the extravagant loans to Third World countries because its role is more to syndicate loans than float them. “The real plus for us,” he says, “has been the exposure to the whole new world of international banking. Whatever happens in Canada in the current deregulation trend, deep down inside we believe that we can’t prevent the inevitable from happening. At the same time, with relatively free flow of funds around the world the distinction between domestic and foreign markets is disappearing. Orion gives the ability to respond to clients who want access to the international markets formed by this new climate.”
Equally significant is the fact that Orion has taken the Royal into territory still forbidden to the chartered banks here. Federal Finance Minister Barbara McDougall’s discussion paper released this spring called for the easing of regulations in the trust, brokerage and insurance business, while neglecting the major banks. But the Royal has not given up. Said Styles: “If, as and when the laws are changed in our favor, Orion will have provided us with a comfort level and knowledge of affiliated financial service companies which we would not otherwise have had.”
The growth of international banking is about to get a major boost: the recent deregulation of Japanese banks is bound to set off another round of increased competition as the Tokyo money fraternity starts to apply the same noholds-barred tactics as other Japanese entrepreneurs. All in all, Orion may well be the prototype of the Canadian bank of the future.
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