Concentra Sold, Who Benefits?

The Central Credit Union of Saskatchewan has sold its 84% interest in Concentra Bank to the Equitable Bank Group. The press release clearly represents this as a good deal for both parties, but is it such a good deal for the mid-size and smaller credit unions of Canada that have been the primary clients of Concentra?

Concentra Bank (doing business as Wyth Financial) is the 13th largest Schedule 1 bank in Canada with @$11.3B in assets and @$6.6B in deposits. Its subsidiary, Concentra Trust, is Canada’s 7th largest trust company with @$32B in assets under administration. Concentra has been an important building block in the success of credit unions in Canada.

Equitable notes:

Notably, 47% of Concentra Bank deposits are ‘Credit Union Deposits’. The level of credit union sourced trust assets likely comprise at least 47% of the $32B. For example, many credit union ‘registered plans’ are offered through Concentra Trust. Concentra Bank and Trust was been built to provide smaller credit unions with needed ‘second tier’ trust, treasury, and lending services.

One key sentence in the Jan 2022 DBRS report on Concentra Bank jumps out, “DBRS Morningstar believes it would be difficult for individual credit unions to find a cost-effective replacement for key services provided by Concentra.”

So, why is the “largest provider of wholesale banking and trust solutions to 90% of Canadian credit unions outside Quebec” sold to a competitor?

The statements made publicly by SaskCentral do not address this question. The release has the CEO offer, “We believe Equitable Bank is the best choice to acquire Concentra Bank…” This suggests they were looking to sell. The 2020 SaskCentral annual report included one goal about investments needing to be productive.

In that same annual report, Concentra is listed prominently in the corporate profile section. There is no suggestion that the business was not core to SaskCentral.

So, the reasons? Maybe it was an investment-based decision, SaskCentral is freeing up capital. The investment may not have been generating a ‘satisfactory return’. Or perhaps there is a upgrade on the technology front, with a commitment retire the Wyth software and to gear up for the “…arrival of the real-time payments rail and open banking in Canada.” New capital IT investments by SaskCentral may have been avoided.

Never-the-less, there are strategic negatives:

• A key business partner to @200credit unions is no longer controlled by credit unions.
• Equitable Bank gets access to important information about credit unions and millions of credit union members.
• Uncertainty is introduced. The terms and conditions of existing services to credit unions are subject to change. The scope and pricing of future services to credit unions is unclear.
• EQ Bank, the digital bank and credit union competitor, gains a market foothold in Western Canada.

The tagline used by SaskCentral is “Dedicated to Credit Union Success“. I think it is up to SaskCentral to explain how this sale aligns with that aspiration.

Credit union centrals, Concentra, Collabria, Celero, and other organizations have been created to give Canada’s credit unions greater control over financial services infrastructure, reduce reliance on banks, and keep costs reasonable. This sale can certainly be seen as a reversal.