Financial Post
Barry Critchley
Mar 24, 2015
Shareholders of Pacific & Western Bank of Canada, one of the country’s more unusual financial institutions, gather in Toronto Wednesday for the annual general meeting.
The company’s owners – the bank has been public since late 2013 – have reason to be pleased with what management has achieved with the London-based Schedule I Canadian chartered bank. The institution is national, even though it has no branches, and is constantly seeking new asset and liability situations through technology.
For instance, it raises deposits through a network of deposit brokers, it buys assets through its bulk-receivables program, it makes loans to real estate developers (largely in Southwestern Ontario, having vacated Alberta and Toronto a few years back), provides third-party credit card services to Home Hardware, does point-of-sale financings, and recently provided Financeit with up to $75 million to help expand its Canadian consumer financing program.
The bank has recorded good steady growth – assets at last count were $1.52 billion – and healthy capital ratios, with the latter development helped by two issues of 7% non-viable contingent capital, $14.6 million last October and $16.8 million last month.
“Growth has picked up as we had hoped and shareholders can be quite pleased with the initiatives we put in place a few years ago, which are finally gathering a head of steam,” said David Taylor, the bank’s chief executive on the eve of its annual meeting. “And the spreads, which were 2.2% at end of last quarter, are holding up,” added Mr. Taylor.
But the shareholders can be disappointed with the share performance. In its time as a public entity, P&WBC’s shares have traded in the range of $5.50 to $7.25. It went public at $7.25. (The shares closed Tuesday at $6.01.) It doesn’t pay a dividend.
Mr. Taylor has a pragmatic view of the shares, the bulk of which are held by the publicly listed holding company, PWC Capital. The public float is about 20% of the shares outstanding.
“My view on the share price is that as long as you can keep an ever increasing bottom line, and as long as the return on equity figures keeps increasing, the stock will eventually catch up,” said Mr. Taylor. “In the short run [the stock market] is a voting machine, in the long run it’s a weighing machine,” noted Mr. Taylor when indicating that “as we put out better and better numbers, eventually the market will become aware of the value of the stock and bid it up.’
The lack of a dividend – P&WBC is the only Schedule 1 bank that doesn’t pay a regular distribution – is another reason why the stock trades below its book value. “When we begin paying a dividend on the common shares, that will probably have quite a positive impact on the shares,” noted Mr. Taylor, who said that, “theoretically, if one is growing as rapidly as we are, we should retain all our earnings for future growth.”
Mr. Taylor termed the situation – a non-dividend paying bank – as “an odd scenario” and added the bank’s parent also doesn’t pay a dividend on its common shares. A similar argument is at work, said Mr. Taylor: “If we keep growing the bank, its value will keep increasing, which will be reflected in shares of the holding company.”