National Bank of Canada says it has cleared a key regulatory hurdle in its proposed acquisition of Canadian Western Bank. The head office of the National Bank on April 21, 2017, in Montreal.Ryan Remiorz/The Canadian Press
John Turley-Ewart is a regulatory compliance consultant and Canadian banking historian.
The first consequential decision Canada’s new Finance Minister Dominic LeBlanc made was approving the merger between the Quebec-based National Bank of Canada and the Alberta-based Canadian Western Bank, combining the sixth and ninth largest banks by assets in Canada.
His approval came on the Friday before Christmas, when much of Bay Street and the country’s attention was on the holidays ahead. Yet this merger will attract attention in the coming months, and for good reason.
It is a merger unlike any other in Canada’s banking history, combining two regional institutions that have been serving the needs of businesses and consumers neglected by the Big Five banks. As such, the path to success will not mimic usual post-merger stories where the narrative is defined by a top-to-bottom efficiency squeeze shedding executives, middle management and others, though there will be some of that.
These are different banks serving different markets with unique organizational cultures. The first indication of this merger’s difference was evident in National Bank’s June announcement where it declared that the deal would keep CWB’s branch footprint, Edmonton-based executive and operational presence.
This isn’t typical of Canadian bank mergers. When RBC’s deal to buy HSBC Canada was approved in December, 2023, all Canada’s largest bank could commit to was retaining HSBC employees for at least six months after the transaction closed.
Opened in 1984 in Edmonton, the Canadian Western Bank has emphasized local decision-making and management by common-sense people frustrated with central Canadian banks. CWB’s vision was simple: A Western Canadian bank designed for westerners that provides commercial and other credit frequently denied by bureaucratic Toronto banks.
National Bank was founded in 1859 by a group of Quebec City businessmen who were committed to serving Francophones. It is and has been a critical part of Quebec’s business and political community ever since. Its purpose included addressing frustration with Anglophone-dominated banks that delivered insufficient service to Quebec’s majority French-speaking population.
But one other factor differentiates National that is relevant today – it is the only Canadian bank operating now that is the product of a government bailout. After the First World War, bad loans crippled the bank, leaving it insolvent, a fact kept from the public but not Canada’s finance department. The federal government refused to save it; Ottawa refused to bail out any bank in trouble.
Despite banking being beyond the Quebec government’s jurisdiction, it stepped in with millions in public monies and engineered a merger between National and a smaller bank in the province to avoid a banking crisis and create the foundations for a big Francophone bank. Success was not assured. Its path to solvency in the 1920s was unusual. As one study has shown, “it took various creative [if not fraudulent] reporting, accounting, repayment and taxation schemes to recapitalize the new Banque Canadienne Nationale … resulting from the merger.”
National Bank’s near-death experience in the 1920s set it on a determined path to prudent management for the next century. That prudence was owed to shareholders, customers and the Quebec government that supported it when Ottawa would not. But there was also a price to that prudence.
Growth outside Quebec, where risks were increased, was hobbled. The more national the Big Five banks were, the harder it was for National to organically break free of its regional comfort zone. The current merger is National’s attempt at changing that. A century after National was saved by Quebec, it has taken a decisive step to grow outside that province by acquiring CWB and building a bank true to its “National” branding.
Canadians have a vested interest in its success. If executed effectively, it will add to competition and consumer choice in Canada over time and better connect Quebec and Alberta businesses to new opportunities in other parts of the country. Yet the distinct nature of the deal means there are plenty of challenges ahead.
First steps first: With more than 30,000 employees, mostly Francophones, National Bank has ten-times the staff as Canadian Western. The immediate hurdle is ensuring CWB’s employees are not marginalized – that the combined organization is not one characterized by two solitudes.