When Bank of Montreal decided to open a new branch in Fort McMurray, Alta., executives at Canada’s fourth-largest bank had some difficult decisions to make.
In a city where retail space is in short supply, BMO knew it would have to pay dearly for whatever real estate was available. Converting an old Blockbuster Video store into a new branch would cost about 20 per cent more than a typical location in Calgary, where prime retail space is already among the priciest in the country.
But at a time when banks are under pressure to keep costs in check, they are also being pressed to find new ways to boost branch revenue. For BMO, that meant turning to Alberta for expansion.
“We all swallowed when we saw what the lease rate was,” Robert Hayes, senior vice-president of BMO’s Alberta and Northwest Territories division, said about the $2.2-million the bank spent to add a second branch in Fort McMurray last summer. Attempting to grab a bigger piece of the fast-growing market wasn’t an option, he added. “I wish I could have opened three of them, to be honest.”
The expansion is part of a bigger push by financial players and retailers to take advantage of the migration of people to Alberta that is defying trends elsewhere in the country. Despite recent concerns about contractions in the oil sands because of softening prices for bitumen, Alberta’s population growth still outpaces the rest of the country.
The provincial population grew by 24,724 in the third quarter of 2012, surpassing the previous record of 24,651 set in 2006. It was the third-straight quarter that the population grew by more than 20,000. A recent report by Macquarie Equities Research analyst Michael Smith said the trend is now one of “strong upward momentum.”
For financial institutions that means the tough decision to start spending significantly to expand in Alberta, even as they trim costs across their branch network. Mr. Hayes said BMO decided to “bite the bullet” and push more aggressively into Alberta to ensure that it can vie for a bigger slice of the lending and investment market. For the first time, the bank also created a standalone division of executives overseeing Alberta, he said.
During a four-year period from 2011 to 2014, BMO expects to spend about $100-million to open, renovate or move 26 branches in Alberta, including a revamp of its branch in Banff, a location many Canadian lenders see as a way to trumpet their brands because the town is frequented by tourists from across the country and around the world.
Fort McMurray, with its surge of young families and oil sector workers, is a key battleground for supplying mortgages and investment advice.
And after a contraction in the investment banking sector following the 2009 recession, Canadian and international banks are now putting more bankers in Calgary to take advantage of an expected increase in corporate borrowing and deal-making.
“There’s more people coming in, and more opportunity,” Mr. Hayes said. “To grow revenue you have to add some cost. That’s the mentality we’ve taken on.”
Such expansion comes with challenges, however. Financial services “are not necessarily the No. 1 employer of choice for a lot of people out here,” noted Mr. Hayes, who is based in Calgary. “There’s oil and gas and there’s agriculture, two huge industries. You’re competing not only with other financial services companies, but for people who have a business and finance background with those other operations as well.”Report Typo/Error