I think the more interesting thing here is Loblaw taking a 16% position in Equitable Bank.
EQ Bank has really struggled. If I were to have guessed, I would have figured the stock would have opened -10%~ on that quarter. It was that bad. However, the deal really seems to have ignited confidence in the company again. And I would imagine it is because they now have Loblaw as a 16%~ shareholder.
Digital banks usually burn millions on Google and Facebook ads, television ads, etc to acquire customers. EQB just bypassed that entire struggle. They now have a direct line to 17 million PC Optimum members.
And because Loblaw now has a vested interest, they're going to be active in promoting accounts. For example, lets say Loblaw offers 20,000 PC points to open an EQ account. The cost of that acquisition is significantly lower than fighting the Big Six for ad space.
In addition to this, it also diversifies their business. Before this deal, EQB's earnings were heavily influenced by interest rate spreads and housing volume. They were the most popular when their chequing accounts were offering 4.5%+ rates. Now? Rates are much lower and customer additions have stalled.
I sold Equitable because I didn't like what I see operationally. This deal is nice, but if the underlying business does not improve, it won't matter.Yes, they can add new customers via PC Financial easier, but that won't help the large amount of provisions they're taking.
Could be an added tailwind moving forward, but they need the core business to improve as well.