The Nation’s Business

Not all financial CEOs favor bank mergers

‘To say that Canada should have financial institutions the same size as countries 10 times our size is crazy’

Peter C. Newman May 25 1998
The Nation’s Business

Not all financial CEOs favor bank mergers

‘To say that Canada should have financial institutions the same size as countries 10 times our size is crazy’

Peter C. Newman May 25 1998

Not all financial CEOs favor bank mergers

Peter C. Newman

The Nation’s Business

‘To say that Canada should have financial institutions the same size as countries 10 times our size is crazy’

In this age of bank mergers and worship of bigness in all its mega incarnations, a few voices are being raised that claim other criteria ought to define the future. One is that of Bank of Nova Scotia chief executive Peter C. Godsoe, who maintains that the Big Five banks ought not to become the Big Two-and-a-Half. As the Half in such a configuration, Godsoe claims that he will achieve all that his rivals can do, simply by being smarter instead of bigger.

Another voice in the same choir is that of Dominic D’Alessandro, president and chief executive of the Manufacturers Life Insurance Co., which is in the process of turning itself into a full-fledged financial institution and wants to retain its independence in the new global environment. “Why the hell don’t we let Citibank come up here to

buy the Commerce and allow Deutsche Bank______

to buy the TD, and sell all our institutions?” he demanded sarcastically when I dropped into his Toronto office recently. ‘We could make the argument,” he adds, “that this is the best way to lower the banks’ unit costs.”

He speaks softly, but this is a subject that claims D’Alessandro’s anger, as he spits out his comments on the subject in short, emotional bursts: “Of course, if that happened, we wouldn’t have a country. To say that Canada, with 30 million people, should have financial institutions the same size as countries 10 times our size is crazy. Crazy. What are the bank mergers really all about? Are we getting value?

Are these guys creating jobs? Are they competitive? Is our society all that we want it to be?

There’s no evidence, none, that in the financial services sector we’re falling behind anybody.

On the contrary. The opposite is true.”

The Manulife CEO, who has been in the job since January, 1994, has tripled the company’s operating income and nearly quadrupled its net profits. It is a global company now with assets of more than $80 billion and 18,000 employees in 13 countries.

D’Alessandro’s career is a good example of how Canada’s business leadership is changing. Manufacturers has traditionally been an old-line Establishment firm, having been founded by Sir John A. Macdonald in 1887, and headed for years by members of the Gooderham family, various Canadian senators and other Establishment luminaries. D’Alessandro was born in Italy 50 years ago and came to Canada at the age of 3 with a family of no means. His father, a construction worker, died when he was 6, and his mother had to raise four children, all under 13, by herself. He worked hard, eventually studied math and physics at Montreal’s Loyola College and later, across town, at McGill University. Having earned an accounting degree in night school, he joined Coopers and Lybrand which sent him to Paris for a year. D’Alessandro then moved to Genstar, a Canadian conglomerate, where he spent two years in San Francisco as vice-president of its materials and construction

group. In 1981, he returned to Montreal and a job in the finance department of the Royal Bank; seven years into the job, he was executive vice-president of finance of the bank, and was a candidate to succeed Allan Taylor as chairman. “The Royal was quite a WASP institution when I started there,” he recalls. “A fellow called Bob Utting once asked me if I was Italian and when I admitted I was, he said that he was from Niagara Falls and that there were a lot of Italians there, most of them gardeners. That kind of stereotyping really pissed me off, so I told him that my gardener’s name was Chuck, and that I would ask him if he was from Niagara Falls. We got along famously after that.”

When John Cleghorn got the top job at the Royal, D’Alessandro left to become president and CEO of the much smaller Laurentian Bank, where he had a successful five-year run. As Quebec’s nationalistic Caisse Desjardins moved in to tighten its control of the Laurentian, D’Alessandro moved to Manulife, where he has been shaking things up ever since. He shed underperforming assets, engineered a merger with North American Life Assurance Co. and cleaned up the balance sheet. ‘We’ve got a really nice company now,” D’Alessandro says.

At the moment, his main priority is to demutualize the firm. That would mean it would no longer be owned by its policyholders, but could become a regular multifaceted financial institution, its shares openly traded and able to raise money on the financial markets. “It would have allowed Manulife to make a bid for London Life, for example,” D’Alessandro points out, “because we could have issued shares and done outside financing. To me, the mutualization system contains the seeds of its own demise. The absence of market discipline that forces you to be efficient will eventually cause you to be complacent and under-invest in your business. That means your company can end up being mediocre.”

He is also well aware of the danger of demutualization, which robs life insurance companies of the protection of being owned by their stockholders, and places them right out there as desirable takeover targets. He has been at the forefront of the insurance industry’s lobbying Ottawa for a five-year, post-demutualization ownership protection clause, which would protect a company from takeover for five years after demutalization takes place, and he will probably get it.

D’Alessandro is an increasingly important player in the Canadian money game. He is no longer a banker and doesn’t particularly want to be one again, and yet once Manulife is demutualized, there will be few banking functions his company will not be able to perform.

The four banks wanting to get married keep telling us that only by merging can they safely tread into the 21st century. And yet it is from financial institutions like Manulife, right in their own backyards, that they will have to face new and telling competition.