Wealth One owner Anthony Lacavera, right, with incoming chairman John Webster in Yorkville, July 2. The consortium assembled by Lacavera has acquired a 65-per-cent stake in the bank.Duane Cole/The Globe and Mail
The last time Globalive Corp. chairman Anthony Lacavera set out to try to disrupt an industry he characterizes as an oligopoly, the foreign capital that he’d secured became a source of regulatory headaches.
Wind Mobile, the wireless carrier he founded in 2008 with the help of Egyptian billionaire Naguib Sawiris, wound up in a protracted legal battle over whether it met Canadian ownership rules. Then, in 2016, the private-equity investors who had recapitalized the carrier decided to sell it to Shaw Communications Inc., against Mr. Lacavera’s objections.
So when the Canadian entrepreneur set out in search of investors to help finance Globalive’s acquisition of Wealth One Bank of Canada, a Toronto-based Schedule I bank subject to a federal government divestiture order, he wanted to avoid repeating that experience.
“I’ve been extremely focused on making sure all of the investors are not controversial in any way, shape or form … and that all the investors are not managing money for other people,” Mr. Lacavera said. “There’s no private-equity firm that is saying, in five years or seven years we need to liquidate this or monetize this,” he added.
In addition to himself, the consortium that he assembled includes Western Canadian property developer Ryan Beedie and his direct-investment platform Beedie Capital; Calgary-based insurance financing company Grasslands Finance Corp. and its chief executive officer, Erin Smith; Chris Kayat and Gary Mauris, co-founders of mortgage company Dominion Lending Centres Inc.; and wealth-management firm Optimize Financial Group. John Webster, a banking executive who’s held leadership roles at Scotia Mortgage Corp. and Maple Trust Co. and steps in as the bank’s chairman, is also an investor.
Together, they’re paying $58-million for a 65-per-cent stake in the bank, with legacy investors holding the remainder.
The acquisition closed on Monday, more than two years after then-finance minister Chrystia Freeland ordered three of the bank’s founders to divest their stakes in the lender and imposed national-security conditions on the bank. The three men – Toronto insurance executive Shenglin Xian, Vancouver property developer Morris Chen and Toronto grocery tycoon Yuansheng Ou Yang – have faced federal scrutiny over their alleged links to the Chinese government.
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To satisfy Ottawa’s order, all of the bank’s shareholders, including the trio, are divesting their shares, with ownership of the bank moving into a special purpose vehicle, or SPV, a legal entity that allows multiple investors to pool their capital and make an investment in a single company. Globalive is responsible for governance over the SPV, while other investors will be limited partners.
Mr. Xian, Mr. Chen and Mr. Ou Yang continue to have an economic interest in the bank, according to Mr. Lacavera. “The consideration that they received for their shares was an economic interest, and they’re not allowed to own any shares or have any information about the bank,” he said. Mr. Lacavera declined to provide the terms of that agreement.
Those shareholders who weren’t named in the divestiture order have decided to reinvest, Mr. Lacavera said. That group includes Lawrence Lu, a real estate developer in the Toronto area.
Wealth One was founded in 2016 with a $50-million investment and a focus on catering to Chinese-Canadian clients.
The company “stumbled out of the gate,” said Paul Leonard, who took over as CEO in late 2020.
“It’s very challenging to really get a de novo bank up and going, and it struggled for the first several years,” Mr. Leonard said.
Wealth One’s primary business is providing mortgages to new Canadians and entrepreneurs. The majority of its $516-million in assets are uninsured mortgages on residential real estate, although it also provides loans on commercial real estate and the cash surrender values of life-insurance policies. It offers high-interest savings accounts to entice deposits, which its Schedule I licence allows it to accept.
Wealth One has never turned a profit, a fact that Mr. Lacavera attributes to its small size.
“You can’t make money until you’re at a certain scale,” he said, citing compliance costs and other expenses.
Wealth One had been growing both its deposits and its loan-application volume when, in April, 2023, Ottawa ordered the three founders to divest, Mr. Leonard said.
“We were very close to profitability,” he said.
The shareholders approached Mr. Lacavera, who’d been in the news for trying to buy back his former wireless carrier. The company, which had been renamed Freedom Mobile, was up for sale as part of Rogers Communications Inc.’s $20-billion takeover of Shaw.
“We were approached by the founders of Wealth One to ask us about our views on how they could navigate what had become an extremely difficult situation with the Canadian government,” Mr. Lacavera said.
“They had learned the history of the difficulty I encountered in 2013 and 2014 when we had our own challenges with the Canadian government.”
Over the course of those discussions, Mr. Lacavera learned that the shareholders had retained a financial adviser and were running an auction process for the bank.
“I started to see an opportunity,” he said.
Canada’s banking industry shares some features with the telecom sector. Both are heavily regulated, with market share largely concentrated in the hands of a small number of players.
“There is an oligopoly in Canadian banks that in many ways mirrors the telecom situation,” Mr. Lacavera said. “There is a similar opportunity to bring innovation to the industry and to offer an alternative.”
Securing regulatory approval for the takeover was a lengthy process. The deal cleared the first regulatory hurdle last December when it got the green light from the Competition Bureau, but securing the consent of the Office of the Superintendent of Financial Institutions and the federal government took longer.
“In terms of the actual review, in my experience, it was long and as detailed as any, I think, in recent history,” said Mr. Webster, the bank’s incoming chairman.
The review was delayed by a revolving door of finance ministers, starting last December when Ms. Freeland unexpectedly resigned. She was succeeded first by former public safety minister Dominic LeBlanc, then by former industry minister François-Philippe Champagne, who took on the Finance portfolio shortly before the April federal election.
“You’ve got a finance minister that’s familiar with the file, and then all of a sudden you’ve got a new finance minister,” Mr. Webster said.
“All the ministerial staff would then be asking all the same questions again, because they weren’t familiar with the file and it is quite complex.”
During that time, Wealth One’s balance sheet shrunk, as the divestiture order prevented its owners from injecting fresh capital into the business. At the end of March, 2023, Wealth One had $636.4-million in assets; two years later, its asset base had declined to $516.3-million.
The capital injection from the bank’s new owners means it can resume growing, said Mr. Leonard, who estimates that the lender will start breaking even when its balance sheet hits the $750-million to $800-million range.
Wealth One’s new owners see plenty of runway for the bank’s existing products.
“We are going to do exactly what the business does today, just more of it,” Mr. Lacavera said.
Eventually, he added, the company will introduce new technologies and capabilities. “But I want to do that once we are solidly profitable,” he said.