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Jun 14, 2024

National Bank deal to acquire Canadian Western Bank may face political hurdles: analyst

National Bank buying CWB for $5 billion

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National Bank of Canada’s deal to buy Canadian Western Bank (CWB) for about $5 billion in an all-stock deal is a win for the acquiring company, according to Veritas analyst Nigel D’Souza.

In an interview with BNN Bloomberg, D’Souza said the acquisition will help National expand and diversify the bank’s personal and commercial franchise across Canada.

“Canadian banking generates the highest [return on investment] typically close to 30 per cent or higher with the lowest credit losses and in a financial system that’s relatively stable,” D’Souza said.

When the offer was made, National was offering $52.24 for every CWB share, a premium of 110 per cent over where the shares were valued before the deal, but that price tag has come down a little since National’s stock price declined following the announcement.

D’Souza said he was expecting further consolidation within the Canadian banking industry, following RBC's acquisition of HSBC Canada, as regional or smaller banks are unable to overcome the structural competitive advantages of larger banks.

"Over the long term, there will be more consolidation in the space for any bank that competes with the big six banks, because you simply can’t beat them competitively.”

While the transaction is not expected to close until the end of 2025, Stephen Boland from Raymond James believes that any roadblocks to the deal will be based on regulatory and ministerial approval. In his latest analyst note, Boland said that for many years, this transaction always seemed a logical fit with each underrepresented outside their home provincial geographies.

Boland doubts the regulator would be concerned about potential competition issues as the Big 5 banks are well represented in Western Canada and in Quebec. However, he does warn that there could be institutions or politicians based in Western Canada that may not be overly positive about their ‘domestic bank’ being acquired.

"Since it’s a Quebec-based institution taking over, I can imagine that the provincial politicians are going to want some political insurance from National, that the job losses are not going to be material,” D’Souza said.