Bank Brings Schitt’s Creek Duo to Fight Canadian Stranglehold

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(Bloomberg) — A small Canadian lender is pushing into the big banking leagues — and it’s not an easy place.

Equitable Bank is now Canada’s seventh-largest lender after targeting companies that its rivals have shunned. The company’s digital account offering, EQ Bank, was recently promoted by Schitt’s Creek father-son duo Eugene and Dan Levy in television spots that aired during the Oscars and Super Bowl. Profits have been rising rapidly, and the company even won a surprise acquisition last year.

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Such dynamics are no easy feat in a banking system where six financial giants control up to 90% of the country’s personal accounts. Canada is also a latecomer to the open banking concept, which makes it easier for consumers and businesses to securely transfer financial data from major banks to fintechs and online providers. This is partly why, despite fees and low interest rates, most young Canadians still use the first bank account they ever opened.

Cue Equitable Bank, which launched its high-yield digital savings accounts in 2016 to disrupt this status quo. The company currently has assets under management of C$119 billion (US$87 billion), more than 600,000 customers and strong growth ambitions.

“Why aren’t there more banks in Canada that look like this?” Andrew Moor, CEO of Equitable Bank owner EQB Inc., said in an interview. “The barriers to entry are really challenging.”

Moor is a vocal supporter of open banking and argues that customers should be able to buy the best products. Canada says an open banking framework is coming – but it’s years overdue, Moor said.

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That wasn’t the only hurdle to EQB’s goal of gaining ground on larger competitors. On the one hand, it has historically relied heavily on brokered deposits for lending – a more expensive source of funding. These represent 56% of EQB’s deposits, although this is down from 87% in 2016 as the company has taken steps to diversify its funding, including through its digital bank accounts, a covered bond program in Europe and deposits , which it sources from credit unions.

EQB also couldn’t get regulatory approval to use its own internal approach to assessing the risk weights of certain assets – something the Big Six banks had been allowed to do for years. According to CFO Chadwick Westlake, this seemingly subtle difference means the company has C$800 million more capital than it needs.

No branches

But Westlake points to the bank’s low-cost, branch-free model and the almost entirely cloud-based technology it uses, which is not hampered by older banks’ legacy systems.

“If you were to take a blank piece of paper today and design a bank, you would literally design the EQ Bank,” he said.

The company targets customers often reluctant to serve larger competitors and provides loans to new immigrants and the self-employed. It has more than quadrupled its share of single-family mortgages in the last decade and now has a market share of 1.7%, according to Canadian Imperial Bank of Commerce analysts led by Paul Holden, who began tracking the bank in March .

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It has also become common in reverse mortgages, in which principal and compound interest are not repaid until the borrower dies or the home is sold. Big banks have steered clear of the complex products, but EQB says they offer an important option to older Canadians.

“EQB has significantly outperformed other Canadian banks over 10 years, 5 years, 3 years and 1 year,” CIBC analysts wrote. Loan growth and low loan losses contributed to earnings growth and were “key to continued success,” they said.

However, maintaining this pace of growth may be difficult, according to CIBC. Another challenge is the bank’s revenue, which, according to Veritas Investment Research Corp. mainly come from interest income. The company downgraded EQB stock in March after increasing provisions for equipment financing loan losses in the first quarter – just two weeks after it began covering it with a “buy” rating.

With little diversification, small changes in the net interest margin outlook can slightly change the outlook for EQB shares, Veritas analysts said.

The company has tried to diversify, including through a foray into asset management. In October, the company acquired a majority stake in Vancouver-based alternative asset manager ACM Advisors Ltd.

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Several larger banks have made competing offers for the stake, according to people familiar with the matter. EQB kept its plans secret by handling the process in-house, and its winning bid came as a surprise to some, the people said.

“Obvious hole”

“As you see us acquire things in the future, you will probably see us acquire more skills to fill gaps. “Assets are an obvious hole,” Westlake said, adding that EQB is also planning organic growth, with the aim of doubling its wealth business in the next five years.

The company, which has existed in various forms since 1970, celebrated its 20th anniversary as a listed company in March. In the three months to January, the company reported a 17% increase in net interest income to C$256 million as it attracted more customers, helped by the launch of its “Second Chance” advertising campaign with the Levys. The number of new private bank accounts rose by more than a third compared to the previous year.

In this campaign, the Levys discuss bank accounts in Dan’s kitchen. Eugene, drinking coffee and eating a muffin, feels guilty about opening an account for his son at a young age that came with “all fees and no interest” and cost him thousands. To remedy the situation, he shows him the EQ Bank app on his cell phone.

“This looks great,” Dan says, before complaining about his dad showing up unannounced. “You know that this chat could have taken place over the phone, right?” He then asks for his house key back.

EQB had started with a script for the commercial, but the Levys added their own “comic genius,” according to CEO Moor.

“Their involvement absolutely improved the script,” he said, adding that the campaign not only attracted new customers but also helped generate investor interest in the company. “It definitely feels like it’s a worthwhile return on investment.”

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