The recent acquisition of insolvent Pacific Savings Bank of Costa Mesa by the Canadian financial services conglomerate Royal Trustco Ltd. could represent the beginning of a series of U.S. banking investments by "snowbirds" from north of the border, Canadian financial analysts said Monday.
And it comes as no surprise that Royal Trust--with a strong balance sheet, a highly regarded management team and the backing of one of Canada's most powerful families--would be at the forefront of the trend.
Royal Trust bought Pacific Savings on Friday with the help of $550 million from the Resolution Trust Corp., which is responsible for disposing of failed thrifts. Royal Trust, which agreed earlier this year to buy Pacific First Financial Corp. of Seattle, aims to build a super-regional thrift offering a broad range of financial products not normally sold by such institutions.
While Royal Trust's acquisition of Pacific Savings was not the first purchase of an ailing thrift by a foreign firm, it was the first by a Canadian company. It probably will not be the last.
"Most major Canadian financial institutions are looking to the U.S. market," said Steven Kressler, an analyst with Prudential Bache in Toronto. "They have looked, are looking and will look--it's the best area for diversification."
Canadian interest in U.S. banks has been boosted by a global trend toward deregulation of financial services and by the new U.S.-Canada free trade agreement, which assures that Canadian firms will not be discriminated against in the United States and also raises the prospect of stiffer competition from U.S. banks in Canada.
Canada's large banks "have been looking at North America as one," said Geoffrey Francolini, financial services analyst at Loewen Ondaatje McCutcheon & Co. "They're well capitalized, and if something fits, they'll buy it."
He cautioned, however, that firms are eager to avoid overpaying and would be willing to wait patiently for the right opportunity.
Royal Trust clearly believes that it has found its opportunity in Pacific Savings Bank and Pacific First Financial, a profitable thrift that is the largest in the Pacific Northwest. The Canadian firm's $212-million purchase of Pacific First Financial, announced in February, awaits approval from shareholders and regulators, but both companies have expressed confidence that the deal will go through.
Pacific First Financial was also contracted to manage Pacific Savings, renamed Pacific First Bank, which has 11 branches and about $1.2 billion in deposits and home mortgage assets. Royal Trust Co. plans to combine the operations eventually as part of its strategy to create a super-regional thrift with operations up and down the West Coast.
It appears that the operation will not, however, include Glendale Federal Savings & Loan, the healthy Glendale institution that quickly adopted a poison-pill defense when Royal Trust bought a 9.9% stake in the firm last year. Analysts agreed that a hostile takeover effort would be extremely out of character for conservative Royal Trust.
Royal Trust is the largest trust company in Canada, with $106 billion in assets under administration and a national branch network. Like savings and loans in this country, Canadian trust companies generally specialize in mortgage lending, but they also perform varied financial management services for companies and individuals.
William Inwood, managing partner and general counsel for Royal Trust, said the company would try to move the new U.S. operations into asset management services, which they do not currently offer.
"We will try to make the product offerings in the thrift more diverse than they are today, in terms of investment advice and asset management," he said.
Royal Trust's other overseas operations consist primarily of offshore banking companies in the United Kingdom and private banking operations in Switzerland, all of which specialize in investment advice and asset management.
Inwood said Royal Trust might pursue more acquisitions as part of its strategy to build a strong presence in the United States. The company is injecting about $47 million into Pacific First Bank.
A controlling interest in Royal Trust is owned by Trilon Financial Group, which is in turn controlled by Edper Enterprises, the vehicle of Edward and Peter Bronfman. They are cousins of Seagram Co. kingpins Edgar and Charles Bronfman.
Trilon also controls several other companies, including a large insurance company and a huge real estate brokerage called Royal Lepage. While there is considerable interaction between the brokerage and Royal Trust's mortgage businesses in Canada, Inwood said Royal Lepage had limited interests in the United States.
Royal Trust management generally gets high marks from analysts. "There track record is excellent," Kressler said. "They are a very well-run company, with consistent growth, a return on equity of 17% to 18%, and a very global view in their activities."
PACIFIC SAVINGS' BUYER
Name: Royal Trustco Ltd.
Headquarters: Toronto, Canada.
Business: Corporate and personal financial services, similar to a savings and loan in the United States.
Assets: $90 billion
Net Income: $110 million for six months to June 30, 1989.
Key Executives: Hartland A. MacDougall, chairman, and Michael A. Cornelissen, president and CEO.