B2B Trust acquires AGF TrustBy Alain Thériault | June 21 2012 02:31PM
B2B Trust, a Laurentian Bank subsidiary, will take control of AGF Management’s trust company after regulatory approval, which is expected in August. As a result, it is strengthening its core businesses: loans and deposits.
B2B Trust has swallowed up AGF Trust in a cash transaction worth more than $415 million. In the deal, B2B Trust acquires all shares of AGF Trust for $242 million. It will also repay the subordinated debt and preferred shares that AGF Management holds in the subsidiary for a total of more than $173 million.
The transaction increases B2B Trust’s loan assets by 50% and its deposits by 30%. B2B is also expanding its network of advisors by 20% and its customer base by 25%. AGF Trust does business through a network of 20,500 financial advisors and 1,050 mortgage brokers .
In an interview with The Insurance and Investment Journal, B2B Trust CEO François Desjardins said that he expects B2B’s distribution network to reach 27,000 after integration, which is expected to be completed in late 2013. The number of customers will increase from 600,000 to 750,000.
When the transaction was announced, B2B Trust had assets of $3.3 billion in investment and RRSP loans, $2.5 billion in mortgages, and $10.1 billion in term deposit products. Once completed, the AGF acquisition will increase B2B Trust’s loan portfolio by $3.1 billion, which includes $1.8 billion in investment and RRSP loans, and $1.1 billion in mortgages. The transaction will also bring $2.9 billion in term deposits to B2B Trust.
B2B Trust is acquiring two new things as part of the bargain: a non-standard mortgage product and mortgage referral program. This program allows advisors who do not have the necessary license to refer clients directly to a mortgage broker or lending institution
“We expect this acquisition to contribute somewhere between $28 million and $30 million per year to the profitability of B2B Trust, starting in 2014,” commented Mr. Desjardins. However, he qualifies this long-term prediction, noting these results suppose being “insulated from other dangers in the economy.”
Interest rates top the list of dangers that shape Mr. Desjardins expectations. “They influence the profitability of financial institutions because they put pressure on their profit margins. Although the discount rate is close to zero, deposit-taking institutions may not lower deposit rates beyond a certain level. Lending rates are continuing to go down a little,” he says.
Acquiring a firm at a reasonable price seemed to him the best way to continue growing despite pressure from interest rates. It was not a question of simply buying to gain market share.
However, growth by acquisition has taken precedence over the organic growth at B2B Trust in recent years. François Desjardins wants to take time to get things well in hand. The integration of MRS Trust, bought from Mackenzie Financial last fall, is expected to be complete by November. “We will then take a break for RRSP season before returning to the integration of AGF Trust.”
Mr. Desjardins will build on the synergy between the two organizations, eliminating redundancy in systems. He does not, however, intend to lay off anyone. “We believe we will be able to achieve savings through natural attrition (voluntary departures) and organic growth,” said Mr. Desjardins.
To maintain cash flow at an adequate level, Laurentian Bank has come to an agreement with the Caisse de depot et placement du Quebec and the Fonds de solidarité FTQ to issue subscription receipts. The Caisse is contributing $100 million and the Fonds de solidarité FTQ is contributing $20 million. When the acquisition of AGF Trust is complete, these receipts will be automatically exchanged against shares of the Laurentian Bank.
The CEO of AGF Management Blake Goldring says that he was pleased to have found a buyer with a similar business model, something which allows for a smooth transition for its customers. With this transaction, combined with its ability to borrow, AGF has gained a war chest of $615 million. These funds will be used, among other things, to finance a proactive acquisitions strategy.
“Beyond unlocking immediate value for our shareholders, the sale of AGF Trust enables us to redeploy capital to accelerate our expansion and growth of our global business while strengthening our successful domestic operations,” commented Mr. Goldring.
B2B Bank in July
To ease the administrative burden, B2B Trust will become B2B Bank on July 7. At the same time, B2B Bank will launch its very first mortgage in its own name.
Mr. Desjardins says it is necessary to change the name to Bank from Trust. Initially, B2B’s activities were focused primarily on account management, a trust activity regulated at the provincial level. This is no longer the case today.
Over the years, B2B Trust had added banking services but was still governed at the provincial level. To do business across Canada with a provincial status complicated regulatory procedures. “That is why we decided to transfer our operations to a bank. Banking is regulated at the federal level, so by a single authority,” explained Mr. Desjardins.
After the name change, Mr. Desjardins says that the companies currently owned by B2B Trust will be consolidated under the B2B Bank banner This consolidation will include B2B Trust turned bank, a trust company responsible for self-directed RRSP accounts (MRS), and three brokers that will offer account management services.
“These brokers currently operate under the MRS banner but will probably move under the B2B Bank banner in September,” said Mr. Desjardins.
The company will also offer a new mortgage marketed as the B2B Bank Mortgage. It will be offered across Canada except in Quebec, where mortgages will be distributed by the Laurentian Bank branch network.
“B2B Trust’s mortgage business had reached the point where it was becoming difficult to retain the Laurentian Bank brand,” explains Mr. Desjardins. There was a duplication of paperwork and advertising expenses.
“From the start of our activities in 2000 and up until 2007, we did not offer a mortgage product. Beginning in 2007, we took on Laurentian Bank’s mortgage brokerage. Since then, our mortgage loan portfolio has almost tripled,” says Mr. Desjardins.