The deal comes at the end of a “difficult year” for EQB.
Equitable Bank parent company EQB is buying PC Financial from Loblaw, merging two banking rivals in what appears to be an attempt to better take on Canada's Big Five banks.
The $800 million deal, which will also make EQ Bank the exclusive financial partner of PC Optimum's rewards program, was announced Wednesday evening. The combined digital bank will represent the interests of nearly 3.5 million banking customers and more than 17 million PC Optimum members. The deal will also give Loblaw ownership of a 17 percent stake in EQB.
“[This is a] a rare example of a merger that we probably don't need to worry about.”
Keldon Bester, Canadian Antitrust Project
EQB said in a press release that the deal “will bring together two Canadian brands to drive change in the banking industry and become a more vocal advocate for consumers.”
EQ, an online bank, is Canada's seventh largest bank, managing $137 billion in total assets; the PC purchase will add another $5.8 billion in assets under management. The Big Five – RBC, TD, Scotia, BMO and CIBC – each manage between $1 trillion and $2 trillion in assets.
Keldon Bester, executive director of the Canadian Antitrust Project, called the deal “a rare example of a merger that we probably won't have to worry about.”
“Overall, I think there is reason for optimism,” Bester told BetaKit in a phone interview Thursday. He said he sees the deal as an opportunity for smaller players to build more competitive businesses. He argued that such mergers could serve to “rationalize the sector.”
EQ and PC suggested that customers would benefit beyond the merged bank's increased ability to compete with larger players. PC customers will have access to a wider range of online savings and registered accounts, while EQ customers will have access to credit cards, as well as the ability to bank in person at more than 2,500 Loblaw branches across Canada. These locations will be rebranded as yellow EQ signs. According to the release, both banks offer free accounts that earn interest and both have cost-effective, digital-first models.
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Until 2017, PC Financial partnered with CIBC to offer banking services. When that partnership ended, the company focused primarily on its credit card and loyalty program business, but began a gradual return to banking in 2020.
The acquisition will also benefit shareholders, although potentially not all EQB and PC employees. EQB emphasized that it expects operating cost synergies (which can sometimes refer to the reduction of redundant staff or infrastructure between companies in the event of a merger or acquisition) of $30 million per year.
The Canadian banking market has recently faced some turmoil. Earlier this week, Laurentian Bank announced it would be sold to Fairstone Bank and National Bank for $1.9 billion. Questrade received approval to launch last month new bank in Canada, six years after it first applied for a banking license. That bank, Questbank, will open next year.
News of the deal came on the same day EQB announced its fourth-quarter earnings, which the bank described as capping a “challenging year.” Although the bank's customer base has grown, its revenue fell four percent compared to last year. The bank cut eight percent of its staff in October.
The deal is expected to close next year.
Image courtesy of EQ Bank.
