Liberals’ Bonnie Crombie takes aim at premier in campaign-style speech at AGM

TORONTO – It’s not easy going up against Canada’s banking oligopoly, but some are trying.

Challengers like EQ Bank and Wealthsimple are rolling out new and cheaper offerings, growing their base and gaining brand recognition. But experts say that rather than creating a disruptive threat to the big banks, mid-sized players are more likely to be bought up by the majors.

“The banking market in Canada is not known to be very competitive. It’s not going to improve,” said Claire Célérier, Canada Research Chair in household finance at the University of Toronto’s Rotman School of Management, who expects more consolidation ahead.

The outlook comes after RBC closed its $13.5-billion takeover of HSBC Canada in March, while National Bank is in the midst of buying Canadian Western Bank in a $5-billion deal.

Fee competition

The loss of the two mid-sized players in what was already a small pool of competitors to the Big Six banks leaves few others with enough scale to even distract the majors.

Wealthsimple is emerging as one, after reporting this past week that it has more than $50 billion in assets, more than double from last year and more than seven times what it had five years ago.

The growth seen with the firm’s business model has led chief executive Michael Katchen to declare that Wealthsimple is the “first and only credible alternative to the big banks in Canada.”

The fintech company’s low fees are a central draw, offering no-commission trading and low investment management rates as part of a growing suite of products as it tries to fill a void of competition.

“When you take out the mid-range players, you make it even more less competitive, and I think the way that shows up is Canadians suffer when it comes to fees,” said Katchen.

The big banks maintain the sector is intensely competitive, especially on areas like mortgage rates.

But consultancy North Economics estimated in March that Canadians pay more than seven billion dollars a year in excess fees. The rough estimate was made by comparing financial results at Canada’s Big Five banks to those in the U.K. and Australia, where charges on accounts, overdrafts, ATM withdrawals and the like are much cheaper or free.

Consumers in countries like the U.K. benefit from aggressive regulators that have put in measures like making account switching easier, by putting the onus on banks to move all payment data and other information over to a new account.

There’s little sign of such switching ease coming to Canada, so competitors like EQ Bank are instead focusing on getting consumers to switch gradually.

“We’re trying to make that seem like a low-risk activity for somebody so you can open a bank account while keeping your other bank account open,” said chief executive Andrew Moor.

The bank pays higher interest rates on accounts where a customer has switched over their payroll, which can provide an anchor, he said.

EQ has also rolled out new products like its notice savings account launched in June, which pays out higher interest rates when consumers agree to give at least 10 or 30 days notice of a withdrawal, and just this last week it launched a bank account targeted specifically at small businesses.

“The nice thing about being a medium-sized bank, it’s much easier to think about bringing that kind of product innovation to the market,” said Moor.

The bank’s efforts have led to its assets roughly doubling in the last five years to some $54 billion.

The wider market

The jumps in size at Wealthsimple and EQ are in contrast to some others smaller players like Laurentian Bank, which has seen its assets grow seven per cent to $47.5 billion in the same time.

Laurentian has been working on a turnaround including numerous executive shuffles, the selling off of business lines and other restructurings, but analysts are still skeptical of how much traction the bank can get even if it solves its operational issues.

“It’s not clear what Laurentian Bank’s structural advantage and competitive advantage will be at the end of all this,” said Vertias Corp. analyst Nigel D’Souza.

It’s not the only one struggling to see much growth. Manulife Bank has grown around 11 per cent to $30 billion since 2019, and ATB Financial is up some 14 per cent to $62 billion.

Canadian Western Bank was seeing higher growth, up 38 per cent to $42.5 billion, but of course it’s being bought up. In the co-operative world, Desjardins has managed to grow around 43 per cent to $444 billion, not too far behind National Bank, the smallest of the Big Six, at $454 billion.

Meanwhile RBC, the country’s largest publicly traded company, has about $2.08 trillion in assets.

Challenges for smaller players

While some of the smaller banks are doing better than others, they all face the challenge of it being more expensive to raise money, in part through paying out those higher interest rates to attract deposits, said D’Souza. They also have to keep more capital on hand because they’re seen as less stable.

Perceptions of stability can also make it harder to convince people to park more cash at the bank than the $100,000 that’s federally insured, though Wealthsimple has gotten around this by partnering with several banks to offer upwards of $500,000 in insured deposits.

The overall hesitations on stability, however, along with other barriers like a lack of a branch network, limited economies of scale and less diversification, mean it will always be hard for mid-sized players to gain market share, said D’Souza.

“Our view has always been that there’s going to be more consolidation within the Canadian banking space, because the larger banks have structural competitive advantages.”

The consolidation could in its own way lead to lower fees, he said, as banks benefit from more economies of scale. Canada’s banking sector is already quite competitive on lending rates, he said.

And while a concentrated financial industry is something especially notable in Canada, it is part of a broader long-term trend, said Célérier.

“Banking markets are more and more concentrated, and this is the case more or less everywhere.”

This report by The Canadian Press was first published Sept. 22, 2024.

Companies in this story: (TSX:EQB; TSX:LB)

CALGARY – Nick Kolomyja reckons axe throwing may have saved his life.

After 30 years as a welder working long hours in heavy construction, he opened an axe and knife-throwing venue in Calgary with his wife last year.

“You work 21 days straight. I never got to see my kids. I was burnt out, worked hard, found this, found a new passion in life and just went for it,” said Kolomyja, 45.

“It’s crazy because I always look back on it a little bit and think axe throwing probably just saved my life.”

Kendra Kolomyja, 42, took archeology at the University of Calgary then did her graduate work in the Netherlands before moving back to teach at Mount Royal University and work in cultural resource management.

So far, she hasn’t found any ancient axe heads.

“I have found a lot of bison bones, arrowheads around here. It would be super cool if I found, like, a fur trade axe. That would be amazing.”

The couple first started throwing axes and knives at a friend’s birthday party and liked it so much they signed up for a league.

They have both qualified, for the sixth time, to compete at the world championships. Next year it’s in Appleton, Wis.

Live Edge Axe Throwing, which the couple opened in November, offers instruction to beginners as well as a spot for more advanced throwers whocompete in weekly leagues with the goal of making it to the worlds.

There are two large targets painted on plywood in each of the five lanes, separated by chain-link fence.

The Kolomyjas each get their own kind of satisfaction from throwing.

“You get that release out of it. If you’ve been having a bad day, and you think, ‘God, I just want to throw something at a wall,’ there it is,” said Nick Kolomyja.

However, putting a picture of a politician or an ex on the target is a no-no to keep things positive.

For Kendra Kolomyja, it’s getting the axe to stick, or sinking the blade into the target.

“It’s actually not as tough as people might think,” she said.

“Sticking it is just so satisfying and cathartic … it’s a Zen thing, where you kind of get into that repetition, over and over. It’s amazing.”

The sport flourished during the COVID-19 pandemic with online and Zoom tournaments. People built targets in their backyards and basements. The Kolomyjas set one up in their garage.

With their new business, the couple said the bills are being paid and the lights are still on.

“It’s an interesting industry where it’s exploding in the last few years,” said Kendra Kolomyja.

“It’s sort of the new bowling at the moment, where people are just discovering that everybody wants to throw an axe … you maybe just didn’t know that you did.”

This report by The Canadian Press was first published Sept. 22, 2024.

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MONTREAL – Pasquale Monaco says he’s debating whether to keep renting out the two-bedroom basement apartment of the Montreal building he owns after it was flooded — again — in August, when the remnants of tropical storm Debby sent four feet of water rushing into the space.

Monaco says the basement of the five-unit building in the St-Leonard borough has been flooded eight times in the last five years, including five times with more than three feet of water.

“I don’t feel right renting it to anyone because I already know that down the line they’re going to lose everything they have,” he said in a phone interview.

Last week, in comments to Montrealers whose homes had been flooded, a member of the city’s executive committee said that living in basement apartments may eventually become a thing of the past — at least in some places.

“I think that in the future we won’t be able to have any more housing in the basement,” Maja Vodanovic, responsible for waterworks at the city, told a council meeting.

While Montreal’s mayor later said that any bylaws limiting basement apartments would apply only to new construction in specific flood-prone areas, some experts and insurers are saying it’s time to have a conversation on where and whether below-ground dwelling is feasible as extreme rainfall events become more common.

The Insurance Bureau of Canada recently described the Aug. 9-10 flooding caused by the remnants of Debby as the costliest severe weather event in Quebec’s history, surpassing the 1998 Ice Storm, with an estimated $2.5 billion in insured damage.

A large number of the 75,000 personal property claims stemming from Debby were due to basement flooding, Craig Stewart, a vice-president with the insurance bureau, said in a phone interview.

“It’s fair to say that basement flooding has cost in the hundreds of millions or even billions in certain years across Canada,” he said.

Flooding, which can occur from rain, rising rivers or sewer backups, can be both costly and dangerous, he said. Mould, destroyed flooring and drywall, and even damage to a home’s structure can occur. Floods can also ruin belongings and be fatal, he added.

As those events become more frequent, he said some insurance companies are limiting coverage, raising prices for flood insurance in areas deemed at higher risk, or declining to offer it altogether.

“Increasingly those situations are becoming uninsurable,” he said, adding, “We think that taking a careful look at where people are allowed to live in basements is prudent.”

Joanna Eyquem, managing director of climate resilient infrastructure for the University of Waterloo-based Intact Centre on Climate Adaptation, says flooding is happening as climate change brings more episodes of “short duration, very intense rainfall” that cannot be handled by urban drainage systems.

She said several things can be done, including updating sewer systems, building retention ponds and working with homeowners to ensure their drainage systems are strong. Another solution is to try to “work with nature” to create spaces that absorb water and send less of it into sewers, as Montreal is doing with its network of so-called “sponge” parks and streets, Eyquem said.

However, she said it makes sense for homeowners in places that flood frequently, sometimes because their homes are built in low-lying areas or above paved-over former rivers, to reconsider living or keeping valuables there.

At the city council meeting, a series of St-Leonard residents asked Vodanovic and Mayor Valérie Plante why the city wasn’t doing more to stop the flooding, including by building retention basins or enlarging sewer collectors. One citizen, who said he had four basement tenants, said his street floods twice a year.

“In November it will flood again, I don’t know what to do anymore,” said the man, adding he was going to stop renting his basement.

Vodanovic said that while the city is updating its sewers and its drainage, it would take 10 or 20 years to complete the job, “and even that would not solve the problem of flooding with 150 millimetres in one day,” she said.

Gonzalo Lizarralde, a professor at Université de Montréal, said it’s theoretically possible to build watertight basements, as well as massive sewer infrastructures that significantly lower the risk of flooding. However, he said the cost to build and maintain such structures is a major factor.

“Everything is possible,” he said. “The problem is, how feasible with limited resources and with real-life conditions is it to do it?”

Monaco says the city hasn’t made an effort to fix the problem. He points out that losing basement apartments — usually among the most affordable options — also represents a cost for a city struggling with a housing crisis, and suggested that more people will end up homeless if they disappear.

“Maybe there’ll be more people (camping) on Notre-Dame Street,” he said. “Maybe then they’ll react.”

This report by The Canadian Press was first published Sept. 22, 2024.