In the Media

Pacific & Western Bank’s mantra: finding niches and use technology

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Financial Post
Barry Critchley
Nov 4, 2014

David Taylor is a veteran banker who left the friendly confines of the big chartered banks more than 20 years back. Taylor, now chief executive of Pacific & Western Bank of Canada, the first domestic bank to go public in 30 years, departed with a business plan built around the considerable opportunities to gather deposits and make loans in areas that were ignored by the Big Six.

But Taylor, whose bank is celebrating its first anniversary this week as being publicly held, realized that to succeed he had to be creative, use lots of technology and go to areas deemed too small or not rewarding enough for the big banks. So he went to the North — where he was stranded on 9/11 — to make loans (that were often supported by a government guarantee) and to the deposit brokers for the fuel to make those loans.

“I guess I was a little early,” said Taylor over lunch on Tuesday, given that he was embarking on an approach not used before in Canada and given that the Internet was still a few years away. But Taylor, who now oversees a branchless bank in which one-third of the staff are involved in technology, supplied the deposit brokers with technology to allow them to remit the deposits.

“But now our time has come,” declares Taylor who still defines his job as finding niche markets that are not well served because those opportunities come with a better risk reward profile. How rewarding? In the first quarter of 2014, P&W’s average spread was 1.95% — up from 1.75% the previous year and 1.30% in 2012.

And Taylor is still finding niches. On the deposit side for example, he has made inroads into those entities which are trustees in bankruptcy. (Deposits gathered from 120 deposit brokers are still the key providers of funds.)

Thanks to technology, P&W offers the trustees, a sector that had been ignored, an account that pays a small interest rate. So far about $100-million has been gathered from about 800 accounts. “Those deposits have a great impact on our cost of funds,” said Taylor.

On the lending side, P&W funds residential and commercial mortgages — though the bank stopped funding condominium developments in Toronto two years back.

Given that void, P&W has also started providing bulk financing to a variety of originators. In essence P&W buys portfolios of loans and leases from specialized lenders. The program — which includes purchases of business or consumer loans or leases at a discount — is generating about $100-million of purchases a quarter.

The bank, which recently closed $14.6-million offering of 7% rate reset preferred shares, has also moved into the white-label credit card world. It provided all the technology for the Home Hardware credit card.

Among other new developments, P&W said in its recently released financial statements that its consumer lending “is planning to expand into point of sale financing.”

If there is a negative to the first anniversary of P&W’s going public, it’s the price of its shares. One year back in a combination primary and secondary offering, investors paid $7.25 per share. On Tuesday and despite strong results, the same shares closed at $5.66.