THE NATION’S BUSINESS

The flush legacy of Canada’s top banker

Peter C. Newman November 14 1994
THE NATION’S BUSINESS

The flush legacy of Canada’s top banker

Peter C. Newman November 14 1994

The flush legacy of Canada’s top banker

THE NATION’S BUSINESS

PETER C. NEWMAN

He was the last, the very last teller to head a major Canadian bank. Allan Taylor, 62, stepped down last week as the Royal’s CEO, and next Jan. 26 will be succeeded as chairman by the Royal’s 53-year-old president, John Cleghom. It may not be the end of an era, because Canadian bank heads follow one another in a seamless web reminiscent of the papacy—except that there isn’t even the telltale signal of a puff of white smoke.

Taylor, who started in a teller’s cage in Prince Albert, Sask., in 1949, put on few airs and always considered himself one of the gang. Taylor was one of those rare financial pooh-bahs who took himself less seriously than he took his job. Under his direction, the Royal’s assets doubled, from $85 billion in 1983 when he became president to $165 billion for 1993; the bank now has more than eight million clients.

Taylor directed the bank’s affairs through a roller-coaster decade that included two Standard & Poor credit downgrades to double A, prompted by the lousy quality of the bank’s real estate loans. Yet his stewardship will climax this year with net earnings of more than $1 billion, making the Royal the first Canadian financial institution flush enough to reach that Valhalla of profitability.

The highlight of his tenure was to lead the struggle to make Canadian banks not only the country’s richest but clearly its dominant power sources. Going into the second half of the 1990s, the economic veto power wielded by the Big Five banks is unprecedented in the free world. Where there were once four financial pillars—banks, trust companies, investment houses and insurance companies—we now are on the verge of having five, and they’re all banks. In the past decade, the Big Five have taken over many of the nation’s trust companies and investment houses; they’re currently moving in fast on ownership of the insurance companies. It will soon be impossible to do much of anything without hav-

Going into the second half of the 1990s, the economic veto power wielded by the Big Five banks is unprecedented in the free world

ing a banker in your face. ‘We lobbied hard to get the four pillars removed,” Taylor told me in a farewell interview last week. “It was mainly because so many people were encroaching on our territory.” Under Taylor, the Royal absorbed Dominion Securities, arguably the country’s most efficiently run brokerage house, and Royal Trust, once Canada’s largest and most reliable trust company. The Royal has also increased its involvement in insurance through acquiring Voyageur Insurance, which sells travel policies. “What we really want,” says Taylor, “is to get into delivering life insurance through our branches.”

Despite such concentration of fiscal clout and the gargantuan size and scope of future banks, Taylor sees little potential for abuse. With proper regulation there should be no reason to worry,” he maintains. “You can be checked pretty quickly if you do step out of line. If ever the public isn’t getting better service and getting it at a proper price, then governments should do something about it. The fate of the old Royal Trust or Confederation Life surely is not an argument for more and smaller financial institutions.”

The Royal was never in trouble, but it became the second-largest lender to the Reich-

manns and by mid-spring of 1992, Taylor had to classify $510 million, or about two-thirds of the bank’s exposure to Olympia & York’s debt, as nonperforming loans, with another $260 million being similarly classified within the next three months. “It’s a bum rap that we didn’t have enough financial information in making the Reichmann loans,” he insists. “Of course, they were extended too much total credit, but the idea that Paul Reichmann somehow mesmerized the bankers and led them along with little or no information was not quite the case. We have equity positions in all those buildings that we loaned against. We didn’t lend out money without security, as is so often claimed. We own the buildings now, and we’re getting a fair amount of our money back.”

On a more constructive note, Taylor spent inordinate time and energy on public affairs projects, pioneering a style of political and economic interventionism that turned him into that banking rarity—a corporate statesman. In the bear pit of the debate about the Charlottetown accord, the Royal published a study on the costs of Quebec independence that turned into a major issue in the subsequent referendum. It remains the document against which other projections are still judged.

Taylor’s constant hectoring that the Feds must slash (not merely reduce) their budgetary deficits became a war cry worthy of a medieval crusader. “Paul Martin’s target to reduce the deficit to $25 billion in two years will still mean adding far too much to the debt load,” says he. “Everybody is hailing this as a great victory, but what we have to do very soon is start talking about what comes after 1996-1997. We have to tackle the national debt and we must do it in these good times, because the deficit will start moving up again with the return of even a slight recession. It was a terrible mistake that Brian Mulroney didn’t move on the issue in the first year of his first term. Now, we’ve bought into the fact that it isn’t going to happen in the Liberals’ first year, but the second budget will have to show what Martin can do. I cheer him on and I’m very supportive of what he says. Now, let’s see him do it.”

Under Taylor’s enlightened stewardship, the Royal raised its annual charitable donations to $14 million, the largest philanthropic budget of any Canadian firm. He also launched (in partnership with Montreal’s Caisse de dépôt et placement du Québec) a $52.5-million fund to support development of biotechnological products for neurological disorders, as well as earmarking $125 million for equity investments in smalland mediumsized companies involved in knowledgebased and export-oriented enterprises. ‘We can no longer wait for government or serendipity,” he says. “Innovations must be financed. We’ve moved away from our traditional practices to provide what’s required the most: patient money. In the past, we never made such risk investments but told the client to go and find an angel somewhere.”

When a banker dares come out in favor of patient money, you know he will be missed.