How Canadian Western Bank is diversifying away from oil money

Canadian Western Bank boasts an impressive 112 consecutive profitable quarters, but like much of the oil-reliant Alberta economy, the Edmonton-based financial services company is feeling the effects of the bust. Take what happened earlier this year. A month before CWB released its second-quarter results, the bank said it would record $33 million in losses related to its oil and gas book. That’s 11% to 13% of the entire portfolio, which caught even the analysts who watch the company the closest off guard.

The incident shows that, for better or for worse, CWB’s fortunes are tied to the price of oil. The bank’s share price tracks the commodity even more closely. The stock peaked at over $40 in 2014 but dipped to around $20 as oil bottomed out this year. What’s important for investors to know, however, is that the firm has been around since 1984, and it has managed, and even grown, through bust cycles before. Canadian Western Bank is also embarking on a diversification strategy so that it’s less reliant on Alberta’s economy, which shows the company isn’t sitting idle, waiting for oil prices to recover—though a rebound would surely help.

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Loans directly related to the energy industry make up 5% of CWB’s total outstanding loans, compared with just 2% for many of its competitors. Chief executive officer Chris Fowler, who has been with the company for 25 years and at the helm since 2013, says he frequently tells his staff to focus on what they can change during difficult conditions. “We can control our choice of business mix. We can control our loan underwriting. We can control our decision on investments,” Fowler says. “But we can’t control the price of oil. We can’t control the interest rate environment. We can, in a very meaningful way, mitigate whatever those changes are.”

Another thing CWB can control is where it does business. Just over 40% of its total loan book remains in Alberta, with another 34% in B.C., but the company is focused on geographic expansion. This spring, it acquired two Ontario-based commercial lenders: Maxium Group of Companies, which has issued loans to 35,000 clients in health care, transportation and real estate; and the Canadian division of GE Capital, which provides financing to the hospitality and restaurant industries. “We’re looking at the same lines of business, we just have the opportunity to capture more clients in what is the largest economy in Canada,” Fowler says of CWB’s ambitions in Ontario.

Read the full story at Advisor’s sister publication, Canadian Business.

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