MONTREAL--Will the Mercantile Bank of Canada be the next victim of this country's spreading bank crisis? And is Citicorp the key to resolving the situation?
Withdrawals by panicky depositors have been causing funding problems for smaller Canadian banks ever since the collapse in September of two Alberta institutions -- the Canadian Commerical Bank in Edmonton and Northland Bank in Calgary. These were the first banking failures in Canada since 1926.
The banks now suffering problems include Mercantile in Montreal, Continental Bank in Toronto, and the Bank of British Columbia in Vanconver. But the hardest hit is Mercantile, which is 24.2% owned by New York's Citicorp.
Prospects for recovery at Mercantile are gloomy, according to an executive at a leading bank, who expects the failing bank to be forced to merge with a stronger partner "within a month."
Frequently mentioned as possible merger partners are the Bank of Montreal, the National Bank of Canada, also of Montreal, and, most interestingly, Citibank Canada, a separate subsidiary of Citicorp in Toronto. All have refused to comment on the possibility.
Specializing in corporate lending, Mercantile reported 1984 loan losses of $22.7 million, an increase of 31.8% from the previous year. Canada have raised the specter of urther problems.
But Mercantile's immediate difficulties are on the funding side: Interbank deposits increased by 731% last year, and the bank is having problems maintaining the confidence of its base of largely institutional depositors.
Rumors that more than $220 million was withdrawn from Mercantile in recent weeks have been confirmed by a senior executive of one of the country's six biggest banks.
Those banks -- the Royal Bank of Canada, the Bank of Montreal, the Toronto Dominion Bank, the Bank of Nova Scotia, the Canadia Imperial Bank of Commerce, and the National Bank of Canada -- say they agreed to prop up Mercantile after the Canadian government agreed to guarantee their deposits if the troubled institution failed.
These banks are reported to have matched withdrawals from Mercantile so far, and are said to be willing to provide up to $1.46 billion over the next six months. However Barbara McDougall, Canada's minister of state for finance, denies that the government agreed to go beyond the normal insurance limits of $44,000 per depositor.
Because of Canada's 10% limit on foreign ownership in a domestic bank, a merger with Citibank Canada would pose regulatory problems. But with tensions rising, the government may be flexible. Last Thursday Miss McDougall asked parliamentary opposition leaders to tone down their rhetoric, so as to avoid …