A Chicago-based bank has caused a stir during the first week of financial deregulation in Canada, pushing up the price of brokerage stocks in the process. The First National Bank of Chicago will buy a 35 percent piece of Wood Gundy, one of the biggest investment dealers in Canada. The deal should be completed near the end of September.
First National will pay C$271 million for a 35 percent stake in Wood Gundy.
``It will continue to be Canadian controlled and managed,'' says Edward Medland, chairman of Wood Gundy.
The deal was announced on June 30, the same day financial deregulation came to Canada's largest financial center. The rules apply only in Ontario but have an effect across Canada.
The Toronto Stock Exchange, for instance, does about 75 percent of the stock trading in the country; most of the foreign banks are centred here and much of the bond trading in Canada is in Toronto.
Financial deregulation allows foreign banks to buy 50 percent of a Canadian investment dealer. By next June 30, foreign firms would be allowed to take a 100 percent position.
The new rules also allow domestic banks in Canada to buy into the brokerage industry for the first time. The Royal Bank, Canada's largest, had been negotiating with Wood Gundy but broke off talks in late June.
One big reason those talks failed was that Canadian banks wanted a bigger piece than 35 percent, which would have meant Wood Gundy's directors losing control of their firm.
Wood Gundy has a 120-person operation in the United States with offices in Boston and New York. Those will not be part of the deal and will be owned separately by Wood Gundy's Canadian owners. The reason is to avoid conflict under the US Glass-Steagall Act, which prohibits commercial bankers from getting into investment banking or underwriting.
The deal has pushed up the shares of other brokerages. Dominion Securities, the largest broker in Canada before the Wood Gundy deal, saw its share price jump from $20 to $21.50 on the announcement.