ATB becomes majority owner of shares in AltaCorp Capital
ATB this week increased its ownership interest in the investment banking firm AltaCorp Capital.
Provisions included in the unanimous shareholder agreement when ATB bought a 30 per cent stake in the investment firm from its founder, the late George Gosbee, in 2010 allowed this to happen.
AltaCorp shares held by Gosbee would have been bought back by the firm and retired. When that happens, there are fewer shares outstanding and therefore ATB’s ownership of AltaCorp increased. It is now the majority owner.
This all raises an interesting question: Why should the Alberta government, through ATB, have an investment banking arm at all? In the current environment for investment banks, and especially those focused on the resource sector?
Alberta Treasury Branches, which remains wholly-owned by the Alberta government, was founded in 1938 with a mandate to extend credit to businesses and individuals in Alberta at a time when eastern financial institutions were not as willing or interested in supporting businesses in the province.
It has never strayed from that mandate, for better or worse.
In 2003, ATB expanded its lending spectrum as a full service bank. It arguably joined the big leagues when it bought the 30 per cent interest in AltaCorp.
Gosbee’s vision was to have an investment bank based in the west, focused on the key drivers of the economy — namely energy and agriculture — and the related tech spinoffs that would enhance the performance of the two sectors. It made sense that ATB, as a key a player in both industry segments, would take an ownership stake in the newly established firm.
“Our interest in being a partner with George helped him realize that quest (to establish an independent investment bank based in the west) and it gave us an investment banking arm, which we didn’t have,” ATB chief executive Dave Mowat said in an interview.
“Being affiliated with AltaCorp gave us an opportunity to provide a service to our existing customers. It allowed us to expand our offering to customers ... and having a financial institution based in the west, with a good appetite for energy businesses was a good fit for AltaCorp as well.”
That world looks a lot different today.
Where clients of investment banks once paid for research, that’s no longer the case. Commissions on trades have declined precipitously, as have underwriting fees for new equity deals. The big banks dominate the investment banking space, leaving little room for the smaller, independent players.
Smaller investment dealers are not regularly included in underwriting syndicates by energy companies large and small as they once were. That shift was evident in 2016 when Suncor did its $2.5-billion equity deal and not one Calgary-based investment firm was included in the syndicate.
Making things more complicated is that equity issues can be done differently through what is called an ATM, or ‘at the market’ structure. This means a company doesn’t necessarily need to use an investment firm to raise capital.
The ATM is a cheaper way to raise money and allows companies to do it on an ongoing basis. It eliminates the need for syndicates and roadshows and decreases the risk to the issuer because it can take advantage of higher share prices in a timely manner. This effectively reduces the cost of capital.
But it also reduces the revenue that once flowed to the investment firms.
None of this, however, is causing Mowat to rethink AltaCorp’s role within the bank’s product offering.
He recognizes the challenges in the marketplace, but sees Gosbee’s vision of an investment firm focused on key elements of the Alberta economy as important to the province’s economic future, and ATB’s clients.
And because ATB is small, it cannot only be nimble but also participate in — or even be a catalyst to — the disruption that’s shaking the financial services spectrum.
Last October, ATB became the first financial services institution in the world to use Facebook Messenger as a platform for carrying out banking transactions rather than using an app that is bank specific.
It means its customers can bank whenever and wherever they want, that is in sync with how people are communicating, especially those of a certain demographic: ask any young adult when they last walked into a bank to complete a transaction and it might elicit a quizzical look, because it hasn’t happened.
ATB is doing what it can to change the face of banking from its current campaign of ATB Listens, to the fact it has a rather different array of titles in its executive team — head of data, chief evangelist, senior vicepresident listening post or Pepper, its customer service Robot.
ATB has also played an important role in helping its clients functioning during the last couple of years, which have been very difficult for many businesses in the province.
Nothing really changes with ATB becoming the majority owner of AltaCorp. But the fact the bank is not averse to looking at the financial services differently, including its client relationships, bodes well for the new generation of entrepreneurs in this province who see opportunity and need a new generation of banker to help them realize their goals.