January 20, 2012
A Valuation Analysis of ATB Financial
What would $3 billion buy for Albertans
Many Canadians will be surprised to hear that the Government of Alberta, alone among the provinces, owns a bank, the Alberta Treasury Branch (ATB), currently marketed in the province as ATB Financial Group, (we’ve simplified this in this paper to ATB Financial, or just ‘the ATB’). Its origins lie partly in the traditional western desire to have less central Canada control over the Alberta economy. And while the ATB has been a part of the many Alberta successes over time, times do change. We need to question whether government ownership of financial services business is necessary in a time of internet and smartphone banking and, more broadly, a vigorously competitive financial services market.
This paper continues a discussion began last year with the publication of Frank Atkins’ paper, The Role of Alberta Treasury Branches in the Alberta Financial Market.
As Professor Atkins noted in his paper, the Alberta Treasury Branch was born out of a peculiar set of circumstances in the history of the province, and out of the ideological world view of the Social Credit Party that governed Alberta at the time.
ATB’s monetary value is quantifiable to some degree, and its value has significantly been affected by the advantage of its public ownership: As Atkins wrote,
“ATB has enjoyed several market advantages that include not paying deposit insurance or paying lower rates for it, not having to pay taxes, having lax capital controls, and receiving government cash infusions when it has gotten itself into financial troubles because of its undisciplined ways. These many advantages, often lacking in transparency, have not provided the necessary incentives for ATB to maintain fiscal discipline.”
In other words, the ATB has benefited from hidden subsidies that come at a cost to the broader taxpayer.
Exiting the banking business would provide financial benefits to Alberta by eliminating these subsidies while providing a substantial one-time cash infusion from the sale of the ATB likely to another player in the financial marketplace. These proceeds would be available for spending on other priorities (like the reduction of Alberta’s debt, or reducing its taxes) in the broader Alberta economy.
Exactly how much the ATB is worth in today’s dollars is not easy to ascertain and one can only approximate its value conducting an analysis of its assets, which Ian Madsen adeptly does in this paper.
As such, this is the first published valuation of the Alberta Treasury Branch. We hope that it will encourage Albertans to think about the potential value that is locked in the ATB, and to spark a debate as to whether that value locked into the institution best serves Albertans where it is, or whether it should be used to better benefit Albertans in the smarter use of these valuable funds.
So, while this paper is meant to be the second part of what will become a trilogy of papers on the ATB, it also represents the beginning of a much broader discussion at the Frontier Centre which will identify and estimate the substantial asset values available for other uses that are presently locked, often for reasons of historical inertia, under state control in Crown Corporations.
Peter Holle, President Frontier Centre for Public Policy
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is an investment and financial analyst based in Surrey, BC. He earned a BA in Economics from the University of Alberta and an MBA in Finance from the University of Toronto. He has managed institutional investment portfolios, lectured at colleges, managed investment research operations, and developed financial valuation models. For several years Ian was vice president at a U.S. investment research firm with extensive operations in India, where he worked and managed staff. He also ran his own investment counseling firm and advisory newsletter. He holds the Chartered Financial Analyst (CFA) designation and is a former president of the Saskatchewan and Edmonton CFA Societies.