Trilon Financial Corporation

Royal Trust Tower
Toronto Dominion Centre
Toronto, Ontario, M5K 1G8
Canada
(416) 363–0061

Public Company
Incorporated: 1982
Employees: 20,000
Assets: C$27.25 billion (US$22.84 billion) (1987)
Stock Exchange: Toronto Montreal Vancouver

Trilon Financial Corporation is a diversified Canadian financial services company that manages trust, insurance, and brokerage operations through three principal subsidiaries. Trilon was formed in 1982 as the financial service company of Brascan, a natural resource recovery and power production company founded in 1899 by Brazilian and Canadian entrepreneurs. Brascan, which owns some 47% of Trilon, was acquired in 1979 by Edper Equities, the Toronto-based holding company of Seagram Company heirs Peter and Edward Bronfam.

At the time of its acquisition by the Edper group, Brascan had completed the sale of its major Brazilian subsidiary, Light-Servicos de Eletricidade S.A., to the Brazilian government for US$380 million. Under the direction of Edper’s chief strategist, Trevor Eyton, Brascan made plans to diversify in its three principal areas of strength: consumer goods, natural resources, and financial services. With limited debt and a substantial cash reserve, Brascan planned to create Canada’s largest diversified financial services corporation.

Trilon has been at the front of the Canadian trend toward one-stop financial service companies. The trend began with similar diversification in large American financial companies such as Merrill Lynch and Prudential Insurance Company. Restrictive legislation prohibited diversification in Canada until the 1980s, when deregulation permitted companies to enter new markets.

The economic climate was ripe for the formation of diversified financial companies. The Canadian life insurance industry had done poorly in the early 1980s. Inflation had decreased the value of insurance products and, in addition, the industry faced increased competition from products offered by banks, trust companies, and governments, all of which had begun to offer similar products to compete for Canadians’ savings.

As a foundation for its operations, Trilon planned to acquire the London Life Insurance Company and the Royal Trust Company, both companies in which Brascan held substantial minority positions. London Life was originally founded in 1874 and had grown to become Canada’s largest individual policy insurer. Royal Trust, founded in 1899, is one of Canada’s largest trust companies.

Under Canadian legislation, insurance companies were prohibited from directly owning trust companies. However, insurance and trust activities could be coordinated under the direction of a holding company. Upon its formation, under federal charter, Trilon increased its holdings in London Life to 80% and then in February, 1983 to 98%. Shortly thereafter Trilon made a $102 million share offering, the proceeds of which were used to acquire a 42% controlling interest in Royal Trust in July, 1983.

Trilon’s management hoped to create a company capable of conducting the entire range of a family’s or business’s financial needs. The company’s strategy was to link trust, insurance, and brokerage operations to take advantage of broadened investment powers which would not be available to each independently. This provided the necessary defense against loss to competition between financial sectors. It also allowed the companies to refer business back and forth between affiliates. Though critics said the formation of Trilon and similar companies presented opportunities for conflict of interest, Trilon argued that the arrangement would bring greater convenience, to the overall benefit of both stockholders and clients.

Trilon’s management came primarily from within the ranks of Brascan, Edper, and the companies they had acquired. Allan Lambert, the former chairman of Toronto-Dominion Bank, was appointed chairman, and Melvin Hawkrigg, the former senior vice-president of Brascan, was named president and CEO.

Trilon grew rapidly through a series of acquisitions backed by Brascan’s substantial capital base. The company’s strategy was to acquire existing companies with the necessary expertise in their respective fields. In its first six months, Trilon became Canada’s sixth largest financial institution, behind the country’s five largest banks. Trilon’s resources were so extensive that it was able to devise a marketing plan to target all of Canada’s six million families.

To coordinate and manage the diversification of its operations, Trilon formed intermediate companies corresponding to its respective services. Lonvest Corporation was formed to manage insurance operations and Royal Trustco to manage trust operations. Trilon also formed a corporate financial services division to manage its own investments and to provide brokerage services. In 1986, this division became Trilon Bancorp, an independent subsidiary.

Trilon’s trust division, Royal Trust Company, was already one of Canada’s largest trust companies when it was acquired. Under Trilon’s direction, Royal Trust began to shed its long-held reputation as a conservative financial institution, taking bold measures to compete with Canada’s banks. In 1984 Royal Trust expanded into real estate operations through the acquisition of A.E. LePage, merging Canada’s largest real estate brokerage with its second largest provider of mortgages. Though the banks had access to greater resources, Royal Trust’s smaller size gave its flexibility and the ability to process transactions more rapidly. Recognizing this advantage, the company streamlined operations even further through greater use of computer technology and the elimination of as many as seven layers of management between the chairman and customers. In 1987 Royal Trust introduced several innovative products in the guaranteed investment certificate markets (GICs), including guaranteed market index investments, stock price adjusted rate certificates, and diversified guaranteed investment certificates. These allowed investors to protect their principal while taking advantage of rises in the stock market.

In its insurance operations, Lonvest also reorganized and acquired in an attempt to broaden the range of its services. At the time of its acquisition, London Life, Lonvest’s primary component, was trying to regain its place as one of the top five companies in the Canadian life insurance industry. It began revamping traditional whole life policies and introduced new insurance and annuity products, including “savings and accumulation” plans similar to plans being sold by banks and trust companies. In 1985 Lonvest acquired all of the outstanding shares of Fireman’s Fund of Canada for C$143 million. Fireman’s Fund, subsequently renamed Wellington, had been operating as a general insurer in Canada since 1840. In September, 1986, Lonvest acquired a 59% interest in the Holden Group for C$57 million. The Holden Group is a U.S.-based specialty insurer that provides individual and group benefit plans for educational institutions and public employees. And in 1987 the company acquired a 60% interest in the Optimum Financial Services Limited. The Optimum manages automobile and property insurance for members of professional and alumni associations in Quebec, Ontario, and Alberta.

Like Trustco and Lonvest, Trilon Bancorp also expanded actively. In March, 1985, it formed its leasing division by acquiring a 50.6% interest in CVL Inc., an auto leasing company, for $1.5 million. The following year it changed the name from CVL to Triathlon Leasing. Through the acquisition of City National Leasing in 1986 and Kompro Computer Leasing in 1987, Triathlon also began to lease equipment and computers. Triathlon is Canada’s largest leasing operation, with more than 40,000 vehicles under management. In 1986 Trilon Bancorp acquired an 11% interest in the Great Lakes Bankgroup, a banking and hydroelectric energy production company, and also acquired Eurobrokers Investment Corporation, a wholesale money broker. Bancorp expanded into real estate in 1987 by purchasing Trustco’s 51% interest in Royal LePage. That year it also formed Trilon Capital Markets and Trivest Insurance Network to conduct merchant banking activities for small- and medium-sized businesses. Trivest Insurance Network is a risk management company which at its formation planned to spend nearly $100 million to acquire minority equity positions in general insurance brokers.

In addition to establishing itself as one of Canada’s largest diversified financial institutions, Trilon has also made significant efforts to expand internationally. In 1986 Royal Trustco acquired Dow Financial Services Corporation, Dow Chemical’s financial services subsidiary, for C$239 million. Following this purchase, Royal Trust established R.T. Securities and Royal International in Amsterdam and opened an office in Tokyo to promote trade between Japan and Canada.

This international expansion continued through 1987 and 1988, when Trilon opened offices in Geneva, Hong Kong, Luxembourg, Austria, and Singapore. In 1987, Trilon Bancorp also entered into a joint venture with Taiwanese investors, obtaining a $6 million, 49% common equity interest in China Canada Investment and Development Company.

Trilon anticipates increased consolidation of financial companies and intense competition between a small group of globally active institutions. Considering its rapid growth to date, Trilon will undoubtedly contribute to the realization of that vision.

Principal Subsidiaries

Lonvest Corporation; Royal Trustco Ltd; Trilon Bancorp; Trilon Capital Corp.; London Life Insurance Co.; Holden Group Inc. (U.S.A.); Security National Insurance Co.; The Optimum Financial Services Ltd. (60%); Royal LePage Ltd.; Triathalon Leasing, Inc.; Eurobrokers Investment Corp.; Trilon Capital Markets Inc.; Trivest Insurance Network Ltd.; Reed Stenhouse Personnel Insurance Ltd.