Canadian Western Bank's pragmatic approach make it top performer in North America Sean Pasternak, Bloomberg News Published: 3:34 am The top-performing North American bank stock of the past five years is based in Edmonton, has 35 branches, and is led by a chief executive officer who has no voice mail and says he isn't smart enough to understand complex debt investments. Canadian Western Bank knows about lending to companies in oil-rich Alberta, however, and that helped the company avoid quarterly losses for the past 20 years. The value of Canadian Western's stock more than quadrupled in the five years ended Dec. 31, six times the return of the 24-member KBW Bank Index, which includes Bank of America Corp. and Citigroup Inc. "They focus on the high value-added, predictable businesses," said Martin Hubbes, chief investment officer at AGF Funds Inc. in Toronto, which oversees about $28 billion and holds Canadian Western shares. Canadian Western Bank CEO Larry Pollock is all smiles these days, as profits at the Edmonton-based bank soar, while other banks incur billions of dollars in asset writedowns. Larry Wong, The Journal You don't see them getting involved in off-balance sheet SIVs or capital markets activities," Hubbes said. Canadian Western's profit probably will climb about 20 per cent this year, while the average bank will report a "modest decline," said Dundee Securities Corp. analyst John Aiken. The Edmonton star of the financial services sector has avoided credit losses stemming from the subprime mortgage crisis, which has led to about $6.65 billion of writedowns at bigger Canadian rivals Bank of Montreal and Canadian Imperial Bank of Commerce. The bank primarily lends to companies that service Canada's oil and gas industry, the largest supplier of fuels to the U.S. Alberta's jobless rate hit a 30-year low last year, and its economy is forecast to lead Canada with 3.2 per cent growth in 2008, according to a Feb. 21 report from Bank of Nova Scotia. Canadian Western's first-quarter earnings climbed 27 per cent to $25.9 million Cdn on record revenue. By contrast, Canada's six biggest banks reported their first average profit decline since 2002. "You've got to view it less as a bank and more as a growth company," said Toronto-based Aiken, who has a "buy" rating on the stock. "Their growth rate has far exceeded that of the Canadian banks, which has been nothing to sneeze at." Canadian assets are "just way better quality," said Gavin Graham, chief investment officer at Guardian Group of Funds Ltd. in Toronto, which manages about $5.5 billion Cdn and counts Canadian Western as the biggest holding in its Enterprise Fund. Canadian Western says it has no investments tied to the U.S. subprime mortgage market, which has cost the world's biggest banks and securities firms $195 billion since the beginning of 2007. Chief Executive Officer Larry Pollock, who has been in the position for 18 years, said the bank doesn't invest in things it doesn't know. "We're not smart enough to understand that stuff," Pollock said in a telephone interview. "I think that's where everybody got caught. They got hoodwinked into relying on ratings, when they should be concentrating on do you really know what you're buying here?" Instead, the bank's asset liability committee, which consists of about 15 people ranging from senior managers to accountants, evaluates credit risks case by case. Canadian Western, which does about 80 per cent of its lending to companies, works primarily with firms that don't even have credit ratings. It's part of a corporate culture that Pollock insists his 1,214 employees adopt. Pollock, 61, doesn't have voice mail -- nor do any of the bank branches -- and he insists on answering his own telephone. "With us, the calls come through to the person you're looking for," said Pollock. "Any customer can call me any time they want and complain or whatever. I surprise all kinds of people because they get through to me." Pollock said he will use recent market turmoil as an opportunity to buy banking and insurance assets. He declined to say how much the bank could spend. Canadian Western has no current plans to expand its branch network beyond Alberta, British Columbia, Saskatchewan and Manitoba. Still, not everything is working in Canadian Western's favour. The stock is down 24 per cent this year, the biggest drop among the nine-member S&P/TSX Banks The rally in the past five years has made the bank more expensive than peers such as Toronto-Dominion Bank. Canadian Western trades at a price-to- earnings ratio of about 15, compared with an average of about 13 for the banks index. The stock climbed $1.09, or 4.7 per cent, to $24.09 in Monday trading on the Toronto Stock Exchange. Merrill Lynch & Co. analyst Sumit Malhotra said in a March 7 note to investors that while Canadian Western is "certainly a safer name in the sector," after seven straight quarters of 20 per cent-plus profit growth, earnings gains may slow. "I would characterize this as an overreaction by the market," Pollock said, referring to the recent stock decline.