Well, we don’t think so…
If, in a few months, residential mortgage clients of the country’s Big Five chartered banks detect a difference in the way they are being treated, they can put it down to results of a study project underway at the Rotman School of Business. This week and next, students in the Omnium Global Executive MBA program — a joint effort between Canada’s Rotman and Switzerland’s University of St. Gallen — are busy studying the domestic residential mortgage market.
Initially the students, who come from a dozen countries, have focused their attention on information that was publicly available. (Yesterday, for example, they heard from Karen Kinsley, chief executive of Canada Mortgage and Housing Corp.)
But the real analysis starts today when the students begin interviewing the top dog, mortgage-wise, at the country’s five largest chartered banks — in effect, opening each bank’s kimono to the students. Next week, the students will present their findings to each of the five banks.
“The students’ challenge is to come up with strategies [for the five banks] as to how they compete and what they should be doing different,” said Brendan Calder, an adjunct professor at the Rotman School and a long-time participant in the domestic residential mortgage business.
“They will make the presentations and the bank will mark them,” said Calder, who 20 years back was one of the key players in the country’s first mortgage-backed securities companies. Later, along with Ivan Wahl, now running Xceed Mortgage Corp., he started FirstLine Trust, which was acquired by CIBC and renamed CIBC Mortgages.
But before the final presentations are made to each bank, Calder may have to run some interference. Some of the banks have indicated they don’t want the other banks to hear what the students have said about their bank.
Calder said the presentations on each bank’s strategy will be drawn up using the so-called five forces developed by Michael Porter. The five are supplier power, barriers to entry, buying power, threat of substitutes and rivalry.
And based on what Calder has told the students, the Big Five banks — which control about 60% of the local residential mortgage market — are under pressure.
“There [are] a million other things going on that keep disenfranchising the banks in the residential mortgage business,” said Calder, who believes the industry is being shaped by three forces.
“There is the mortgage brokerage force [which has 30% of the market], the automation force and the Canada Housing Trust, which is the securitization force,” said Calder, who contends that in the future, the equation may run this way: One mortgage broker equals one mortgage banker.
“There is no reason to have a chartered bank in the middle. There will be a mortgage broker with some automation who deals directly with the Canada Housing Trust,” said Calder, who noted that since the summer of 2001, the outstandings have risen to more than$87-billion.