CEO of the Year

CEO of the Year 2014: Louis Vachon of National Bank

“More value is destroyed by paralysis than by bad decisions”

Louis Vachon, CEO of National Bank of Canada

Louis Vachon, CEO of National Bank of Canada (Portrait by John Londoño)

For many years, Louis Vachon was a devotee of kendo. He would spend a few hours every week sweating it out at the gym, practising the Japanese martial art, which involves using a large bamboo sword to best an opponent. At some point, though, he had to give it up. “For martial arts, you need to dedicate enough time to be in the zone,” he recalls. “If you’re not in the zone, then you probably should not do it.” The brief anecdote says a few things about Vachon, president and CEO of National Bank of Canada. He’s a guy who knows his strengths, and if he can’t make the commitment to excel at something, then he won’t waste his energy. Vachon has applied the philosophy at National Bank, too, the country’s sixth-largest bank by market cap. It’s not just instructive to look where he’s applied his energies. You also need to look where he hasn’t.

In the past 12 months, National Bank’s shares have outperformed those of its five main competitors, returning 23%. There are external factors to explain the bank’s stellar performance, such as a stable provincial government in Quebec. But, more important, investors are recognizing that Vachon’s strategy, which he’s dubbed “one client, one bank,” is paying off. “Looking at the growth over the past few years, not only with revenue but how he and his team have made the company into a solid leader in Canada, I’m impressed,” says Isabelle Hudon, president of Sun Life Financial in Quebec and a member of the Canadian Business CEO of the Year judging panel. One bank analyst, who wasn’t authorized to speak on the record, put it more bluntly: “Louis is considered to be a very astute business person, and he will make money.”


Vachon comes from a storied entrepreneurial Quebec family—the Vachons are behind the eponymous pastry company, creator of the Jos Louis, and his father served as dean of the business school at Sherbrooke University. “Being a successful business person was highly valued in our family,” he says. Vachon got hooked on finance during his freshman year at Bates College in Lewiston, Maine. On his economics class syllabus was The Billion Dollar Sure Thing by Paul Erdman, a novel that deals with financial markets. He’s still a voracious reader, juggling seven or eight books at a time. (One current read is the autobiography of former senator Leo Kolber, who worked closely with the Bronfman family. “I like reading this stuff. It’s like candy,” Vachon says.) He is even building a library at his home because he’s run out of space for his books.

After completing a master of international finance at the Fletcher School of Law and Diplomacy at Tufts University in Massachusetts, Vachon started his career on the interest-rate swap desk at Citibank Canada in 1985 and, the following year, joined brokerage firm Lévesque Beaubien Geoffrion (which was acquired by National Bank). He left for the Canadian subsidiary of Bankers Trust for six years, then returned to National Bank, where he worked his way up through a series of positions, predominantly on the capital markets and trading side, before taking over as CEO in 2007. Coming from the trading world, he was used to making decisions quickly, which doesn’t fly in the CEO suite. “I had to learn that not every problem has to be solved in the next five minutes, and you can investigate and validate a little more before making a decision,” he says. Though you’ll never catch him dithering. “More value is being destroyed by analysis paralysis than by bad decisions.”

Vachon’s hallmark “one client, one bank” initiative involves breaking down silos to ultimately improve client services. Analysts have been impressed with the effort to cross-sell products too, as well as Vachon’s progress in turning National Bank into a one-stop shop for all its clients’ financial needs. That might mean referring a small-business owner to the bank’s wealth management division in order to provide both business and personal banking services. The strategy is more profitable on a per product basis, and the more things clients rely on an institution for, the more likely they are to stick with it.

Take credit cards as an example. Some firms, such as Toronto-Dominion Bank, which paid US$6 billion for Target’s credit card portfolio in 2012, are pursuing the segment in order to squeeze all the profit they can from the current low-rate environment. Not Vachon. “We don’t share the same credit card obsession,” he says. Vachon would rather focus on getting credit cards into the hands of existing National Bank clients instead of hustling for new ones.

Even after more than seven years at the helm, Vachon is still finding new ways to integrate the company. Currently, the firm has a pilot project underway in White Rock, B.C., where it opened a retail-banking branch inside an office of National Bank Financial, its brokerage and investment advisory arm. “We’re running an experiment to see if we can use that existing infrastructure to expand,” Vachon says. West of Winnipeg, the company has four times as many National Bank Financial offices as it does retail bank outlets, potentially providing a less expensive way for the company to build on its brand outside its home province. Indeed, outside Quebec, National Bank is probably more well-known to business clients than to consumers, because of its commercial banking specializations. The company has long been involved with small- and medium-sized oil and gas companies, and it’s the largest lender in Canada to the movie and television production industry.

Along with integrating the bank’s various divisions, Vachon is ensuring consistent service across the organization. That involves a lot of communication with staff about why the bank needs to evolve. In the spring, Vachon and his team of executives travelled across the country and met 5,000 employees face to face. “Most important is to ask questions and listen to people,” he says.

Vachon doesn’t follow the advice of everybody, though, especially bank analysts. “Historically, some of the analyst comments regarding National Bank were that we were not dependent enough on personal and commercial banking,” Vachon says. Domestic banks do most of their business lending to Canadians, predominantly for mortgages, and making money on the spread between interest rates. National Bank, however, has an outsized capital markets division, partly as a result of the acquisition of First Marathon Securities in 1999. In the last quarter, the retail banking and financial markets divisions each accounted for 44% of net income. At Royal Bank of Canada, which has faced similar concerns, capital markets accounted for only 27% of net income during the same quarter. This has made some investors and analysts nervous. Lending to Canadian households is a steady, reliable business with recurring revenue; capital markets can be far more volatile. Even though Canadian banks made it through the financial crisis with nary an incident, their capital markets divisions were still viewed with some unease afterward.

And so investors applied a discount to National Bank because of the size of its capital markets and trading arms—always unfairly, in Vachon’s view. Rather than succumbing to analyst pressure to scale back the capital markets division, he made it a focus of an investor day last fall and sold the audience on its merits. “At the time, people were a little skeptical,” says Meny Grauman, a financial services analyst at Cormark Securities. “But over the last few months, people have warmed up to capital markets a lot more than at any time since the financial crisis.” It helps that National Bank’s capital markets and trading revenue generally isn’t as volatile as its competitors’ and that Vachon is a seasoned risk manager. He gives credit to one of his mentors, Jean Turmel (the bank’s former president of financial markets, treasury and investment banking), for his guidance.

National Bank has a specialty in derivatives, but not the esoteric kind that precipitated the financial crisis. Instead, the bank is a solutions provider to the exchange-traded fund (ETF) industry, a huge growth area in recent years. (Many ETFs rely on underlying derivatives, not actual equities or fixed-income products.) “National has a proportion of its total revenues coming from trading, but it’s not as worrisome for us because of the flow of business that’s developed here,” says John Aiken, director of global research at Barclays Capital. “To Louis’s credit and his team’s, they resisted listening to the marketplace to focus on what they do well.”

Wealth management, on the other hand, works to counterbalance the ups and downs inherent in capital markets. “I think we’re collecting the dividends on our investment in wealth management that we started after the 2008 crisis,” Vachon says. Owing to the chaos that ensued, Vachon and his team anticipated a wave of consolidation would hit the industry, so National Bank embarked on a bit of an acquisition spree. The company completed four major transactions in the past few years, including a takeover of Winnipeg-based Wellington West Holdings. “It always goes back to what are you good at and what business do you have a high level of comfort in,” Vachon says. “When we looked coast to coast, we already had two pan-Canadian businesses in wealth management that were quite successful.” Building out the wealth management division was advantageous for a few reasons. It’s stable and low-cost, and in acquiring other companies, National Bank took on new clients from across Canada. For a bank that does most of its business in Quebec, national exposure is important.

Though Vachon is a personable, chatty guy, he’s circumspect on his future as CEO. All five of the major banks have seen turnover at the top, but not National Bank. “I’m still a relatively young man, though aging quickly,” he says. “But it’s up to the board to decide. I think I still have something to contribute as CEO.”