Even before last week, it had been a bad summer for Gerald Pencer, the major shareholder in Toronto-based Financial Trustco Capital Ltd. A month earlier, the controversial businessman unwillingly stepped aside as chairman and chief executive of Financial Trustco, the $2-billion company that he built. Pencer turned the management over to Edmund Clark and John Pelton, two high-priced recruits from Merrill Lynch Canada Inc. Then, last week, Pencer watched from the sidelines as the new management struck a deal to sell subsidiary Financial Trust Co., which has 18 branches across Canada, to acquisition-hungry Central Capital Corp., controlled by financiers Leonard Ellen of Montreal and Reuben Cohen of Moncton, N.B. With that sale, Pencer signalled that his ambition of going head-to-head with the major participants in Canadian finance is all but dead.
After moving Financial Trust’s headquarters to Toronto from Calgary in 1987, Pencer bought 44 per cent of stockbroker Walwyn Inc. And he hired many top execu-
tives away from Wood Gundy Inc., which caused angry officials of that brokerage firm to respond with a $46-million lawsuit. But
analysts and investors have long been suspicious about Pencer’s management abilities, as well as the company’s rapid growth and use of high-yield, high-risk debentures known as junk bonds to raise capital. To change the public perception, Pencer felt that he had to set himself visibly apart from the company. Members of the new management team say that they decided to sell the trust company—in return for $35 million in cash and $167 million in loans and
short-term debt—because they had concluded that Financial Trustco simply cannot compete with the major banks and trust companies. Even so, provincial regulators, who last
year insisted that Financial Trust put more capital into the trust company, last week said that they warmly welcome the sale to Central. Clark and Pelton, who have been on the job just a month, can now pay down some of Financial Trustco’s huge debt with the cash and loans from the sale. They are already making plans to restructure Financial Trustco’s remaining assets. Their ultimate goal is to develop a company that will provide specialized personal financial services. Officials at Central Capital say that a num-
ber of deals are pending, including the sale of its 46per-cent interest in InterCity Gas Corp., and a plan to double its 9.8-per-cent interest in U.S. Trust Corp. As well, they say that they are interested in merging with National Victoria and Grey Trustco Ltd. Said Central president Peter Cole: “While big isn’t necessarily good, the brutal truth about the changing financial world is that the only survivors will be the big guys and the small-niche players.” After trying to compete with the
big guys, Gerald Pencer now seems to be setting his goals considerably lower.
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