The group behind Equitable Bank is hoping to open a trust company later this year that the lender says would help diversify its business and sources of funding.
A recent notice in the Canada Gazette, the federal government’s newspaper, announced an “Equitable Trust” had been authorized by the Superintendent of Financial Institutions to begin operations as of Dec. 19, 2018.
Equitable Trust belongs to Toronto-based financial-services company Equitable Group Inc. The company owns Equitable Bank, which, along with its digital arm, EQ Bank, has more than $27 billion in assets under management and serves more than 66,000 Canadian customers.
Tim Wilson, chief financial officer of Equitable, said the company was at a point where it wanted to establish an additional, regulated subsidiary of the bank.
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Trusts are similar to banks, but have legal powers that banks do not have, Wilson noted. This could allow one to provide different sorts of services to consumers in addition to offering insurable deposits, such as certain types of mortgage lending done through registered accounts.
“You don’t typically set up one bank under another, so it was only logical that we set up a trust company underneath the bank,” Wilson told the Financial Post in a phone interview. “And with that, created option value for ourself, because of the additional powers that a trust company has. So it will allow us to diversify our business model even further.”
The latest move is also a bit of a return to Equitable’s roots, as it was first founded in 1970 as a trust company that offered mortgages in the Greater Toronto Area. Equitable Group was created as the trust’s holding company in 2004, when it was also taken public in an initial public offering. The trust company was then converted to a Schedule I bank in 2013.
Equitable is still seeking approvals for the new trust company from provincial regulators, Wilson said, a process that it hopes will be relatively quick and that will allow it to commence business “within the next few months.”
The company noted the trust application in its latest financial filings, which said that management was looking for ways to “diversify the Bank’s funding profile for risk management purposes.”
Bringing a trust company back into the fold could also form part of Equitable’s plans to grow even further.
“This initiative would further the Company’s ability to pursue its business diversification strategy and would also create a new issuer of deposits that are eligible for insurance through the Canada Deposit Insurance Corporation,” Equitable’s third-quarter report from November said. “These and other new funding sources may eventually be required to deliver on the Company’s longer-term growth aspirations.”
Wilson said they intend to go to market first with “competitive” deposit products, which likely would not be sold directly to consumers, such as those of EQ Bank, but instead initially through wealth management firms across Canada.
One such partnership that Equitable has struck up is with Wealthsimple, as the robo-advisory firm launched a savings account last year.
“I can’t disclose the nature of proprietary discussions, but certainly partnerships like that would be a great source of distribution for these deposits,” Wilson said.
Equitable noted back in November that it believed its current sources of funding (“most notably” brokered term deposits and EQ Bank) were “adequate” to support further asset growth. According to the company, Equitable Bank’s assets make it the ninth-largest independent Schedule I bank in Canada, albeit one that operates using a branchless model.
“Our deposit balances have grown steadily since the middle of 2017 and we believe this trend will continue for the foreseeable future,” the lender said.