Even Laurentian jumps aboard Black Friday bandwagon

Share

The verdict is in: we've jumped the shark.

At this point it barely matters that Black Friday started south of the U.S. border. Seemingly everybody in Canada wants to offer a deal, including Laurentian Bank of Canada.

The Quebec-based lender just announced details of a Black Friday sale on guaranteed investment certificates, offering Canadians elevated returns on these products. Anyone who invests in a Laurentian GIC this weekend can earn as much as 3.15 per cent if they lock the rate in for five years.

But the truth is that there's more to this than a simple sale. It's extremely difficult for financial institutions to attract new retail clients because Canadians rarely move their money. This stickiness helps the established titans, but it makes it tough for smaller players to compete.

These smaller financial institutions have to work harder for deposits, which are extremely important as they are a cheap source of funding. (GICs are effectively a form of deposits that carry fixed terms.)

While financial institutions can get new cash to fund their lending operations from a variety of sources, deposits offer fatter margins. Desjardins recently sold five-year debt that pays a 2.8 per cent coupon. Its five-year GICs pay 2.1 per cent. That may not seem like much of a difference, but think of it this way: it's 33 per cent more upside for Desjardins.

Because deposits are so important, Laurentian isn't the only institution offering deals right now. PC Financial is also heavily advertising its 2.25-per-cent return on savings accounts – its second major promotional push this year. In April the financial institution, which is partnered with Canadian Imperial Bank of Commerce, tried to lure new deposits by paying a promotional rate of 2.6 per cent.

"There's a certain amount of inertia" when it comes to retail deposits, Barry Columb, PC Financial's president, said in an interview. Unless someone shakes up the system with a promotion, it can be hard to attract anyone new. The company's deal "allows us to acquire a whole new customer that may not traditionally give us a try."

Entire takeovers can be inked for the sake of deposits. Bank of Nova Scotia coughed up $1.9-billion to scoop up ING Bank Canada in 2012 because the bank knew just how rare it was for that many customers and deposits to hit the market in one fell swoop.

Despite the Black Friday hook, the latest promotion is simply good news for Canadians. A deal is a deal, and Laurentian's five-year GIC suddenly offers the best return in the market. Until now, AcceleRate's 3.05-per-cent offering was the best out there, according to Cannex.