Louis Vachon, president and CEO of National Bank of CanadaChristinne Muschi
Canada's banking system would be better served if more small, new financial services players were working alongside the major banks, says the head of National Bank of Canada .
Louis Vachon, chief executive officer of the country's sixth-largest bank, said the financial services industry needs more up-and-coming companies, from banks and brokers to hedge funds and back-office suppliers. Compared with countries such as Sweden and Australia, Canada is underdeveloped, he said.
"I am strongly convinced that our financial system would be healthier if we had more small- and mid-cap financial services players," Mr. Vachon said in a speech in Toronto to the Empire Club of Canada on Wednesday.
"The big segment is very solid, but I think a more balanced financial services industry includes small, medium-sized and big players."
One of the problems holding back new financial players is the costly regulatory and compliance system in Canada, he said, which can be onerous for smaller enterprises. National Bank and others would benefit from a proliferation of firms, because the banks would gain more customers, as well as more growth opportunities, he said.
"They are clients and potential clients of the bank," Mr. Vachon said in an interview after his speech. As well, "having smaller financial-sector players around provides us with other avenues for growth through acquisitions or joint ventures."
His comments come as Montreal-based National is believed to be in talks to buy mid-size brokerage Wellington West Holdings Inc. of Winnipeg in an effort to increase its presence outside Quebec. Though Mr. Vachon said the bank wants to grow in other regions of Canada, he would not comment on those rumours.
National Bank already holds a 16.8-per-cent minority stake in Wellington West, an investment adviser that began as a boutique firm in the 1990s and has since expanded across the country. Though the process could stall, sources indicate the two sides are in advanced talks on a deal that would potentially value the firm at more than $350-million.
In making his argument that Canada needs new players in the financial services sector, Mr. Vachon noted that the average age of companies on the S&P/TSX Financials Index is 97 years. "No spring chickens there," he said.
During the past decade, newcomers in the mutual funds sector accounted for only 3 per cent of assets under management, he said. In the brokerage industry, small retail brokers' share of industry revenue fell from 10 per cent a decade ago to about 7 per cent to 8 per cent now.
"My point is not that we don't have entrepreneurial success stories in the Canadian financial industry," Mr. Vachon said. "My point is we need more of them."
He also told the audience he has not changed his opinion about the proposed merger involving the parent companies of the Toronto Stock Exchange and the London Stock Exchange. He is opposed to the deal because it does not offer TMX Group Inc. shareholders enough of a premium, while the LSE is a weaker company financially. The merger does not need to happen, he said.
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Grant Robertson