EQB Inc Acquisition of PCF & Long-Term Partnership with Loblaw Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Aiken - Barclays Services Corp - Analyst : Chad, you mentioned the cost synergies. I think it was around 7% of the cost base. But in terms of your EPS accretion, is there any assumptions in terms of revenue synergies? Or is that surplus that we may see down the road?

Question: John Aiken - Barclays Services Corp - Analyst : Perfect. And if I may add one on since that was an easy question. The overlap in terms of the customer base, the 3.5 million that's going to be coming in from PC Financial and 17 million in terms of the loyalty members on PC Optimum. What is the overlap? And what -- how does a PC Financial customer look versus an EQB legacy customer?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Congrats on the deal. Just a question on the financing here. So 7.2 million shares issued to a Loblaw Company, that's around $625 million or so at current price. I'm assuming it's the current price we should reference or something else.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Where does the extra $200 or so million come from? Is that coming out of your excess capital, you'll dip down into the 12s for your core Tier 1? I guess, well, on close, you would have the new shares issued that would put you back in the other direction. Is that kind of how it would work though mechanically?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Okay. And then that cash gets replaced essentially by the shares issued -- well, the capital, I guess, rather. Now about this cross-sell opportunity, what's -- when you're game planning this, what's more likely to work from this pairing? EQB with its new and improved over the past year, deposit business, selling that into the Loblaw customer base, maybe mortgages, I don't know about that one, or PC Financial MasterCards to the EQB customer base? Because I can draw that on a PowerPoint slide, but I mean, the PC Financial customer base is loyal, but it looks like they're single product customers primarily.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : And the brands are going to be distinct as well. So if I'm in a PC kiosk, I'm not seeing an EQB deposit, it will be labeled PC Financial or branded or whatever. And if I'm an EQB customer, you just try to sell me a PC Financial labeled credit card? I don't know if that's been -- maybe down the line.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : All right. Well, my wife might -- she collected at the Shoppers Drug Mart, so she might get on this stuff.

Question: Stephen Boland - Raymond James Holdings (Canada) Inc - Analyst : I think a couple -- there was a few good questions. Chad, look, I mean, you've got some several big shareholders already. I know you don't need shareholder approval. But I'm just curious, have you reached out and seeing how supportive they are because you are issuing stock at probably -- I haven't looked at the chart, but maybe a lower valuation than you wanted three or four months ago. I'm just curious if you've had any reactions from your three big shareholders.

Question: Stephen Boland - Raymond James Holdings (Canada) Inc - Analyst : Okay. And second question is when I look at the slide 17, PCLs, I mean, you're grabbing a large unsecured book, a fraction of your size, but the PCLs at PC Financial are a lot higher than what you've delivered. I'm just wondering, is your accretion include similar levels of PCLs in post-closing? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Chad, I want to go back to that credit card, the growth profile. And I'm sure you're going to look to amp it up as time goes on as you sort of get that value proposition to the new clients that you're going to pick up. But when I look at the OSFI data, I do see that the credit card balances have been in and around $4 billion for a couple of years. It's underperformed versus when I look at the larger banks. And I'm wondering -- I don't know if Richard wants to opine on this, but what's been driving that? But it looks like it's been pretty stagnant for a couple of years here in terms of the actual outstanding balances.

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Okay. Got it. And then just a quick one on -- just in terms of the distribution capabilities that you're picking up. Obviously, you're expanding it pretty significantly here. And I guess I was always under the impression that your customer base on the uninsured residential was very well catered to by the broker channel. Was there like a missing component where this sort of enhances that where you're picking up customers that you normally would not get through the brokers? Just curious in terms of how this actually expands into helping your other lending categories.

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Just a couple of questions that I'm a little bit unclear on. And the most important of which I think might be the loyalty reward program. So I guess going forward, how does it work? Who calls the shots on the loyalty reward program? And how are the economics around that shared?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : And does EQB have the right and the ability to add PC Optimum rewards to other financial products?

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Okay. I think I might have some follow-ups on that, Chadwick, afterwards.

Question: +tienne Ricard - Bank of Montreal - Analyst : Congrats on the deal. My question is for Richard. So why is PC Financial in better hands under EQB's ownership? In other words, why monetize now?

Question: +tienne Ricard - Bank of Montreal - Analyst : Okay. I appreciate the details. And Chadwick, this is a meaningful transaction for EQB in terms of scale. So how do you think about the integration complexity and the time line on potential revenue synergies?

Question: Stephen Boland - Raymond James Holdings (Canada) Inc - Analyst : And this is more for the Loblaw side. I mean I presume the size of your portfolio is desirable from -- for every Canadian bank. So why Equitable? Like you said, it was not an option, I presume, but like why Equitable? Why not National, why not one of the other big six banks? Why did you choose Equitable?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Just a couple of follow-ups here. When you talk about funding synergies and Mr. Dufresne's comment earlier about the funding strategy using securitization, I see about $3 billion of securitization assets and then you got a $4.4 billion receivables book. So is part of the plan just securitizing all of that as opposed to using equity for funding?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Yes. That actually segues into my other question. The RWAs, I believe, is PC Financial on the advanced approach?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : No. Okay. All right. I see operating risk RWAs on the OSFI filings. That's all. Then --

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Okay. Cool. Last one I swear. Who asked for this -- I think it's called the change of control provision, the scenario where if there's somebody comes to acquire EQB, and it's successful, you have to pay $40 million to Loblaws. Who asked for that? I guess, Loblaws?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Of course, but it also signals that your intent is to close the deal, and you want to build a long-term partnership, and that's why you're putting that security in there for your protection. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Sounds great. All right. And then what -- under what conditions would you -- I don't know if you can comment on that, but you're below that 25% cap when the deal closes. Is that -- what conditions would -- have you considered what conditions would need to be existing before you decide to increase that to that level?