Laurentian Bank of Canada ended its strategic review without finding a buyer and plans to carry on as an independent firm with a slimmer management team. The company’s shares plunged.
(Bloomberg) — Laurentian Bank of Canada ended its strategic review without finding a buyer and plans to carry on as an independent firm with a slimmer management team. The company’s shares plunged.
The Canadian bank announced in July it was examining its options. It hired JPMorgan Chase & Co. to run the process and considered a number of possibilities, including a sale of the whole bank or parts of it. Instead, it will try to ramp up its current strategy, which includes growth in commercial lending and technology upgrades.
“Having now completed this review of our strategic options, we are more confident than ever in Laurentian Bank’s strong positioning in the market and unique offering for our customers,” Chief Executive Officer Rania Llewellyn said in a statement Thursday.
As part of her plan, Llewellyn is shaking up the management team around her. She promoted commercial-banking head Eric Provost to an expanded role that also includes personal banking, replacing Karine Abgrall-Teslyk. Sebastien Belair becomes chief administrative officer, taking on responsibilities held by departing operations head Yves Denomme.
Montreal-based Laurentian will focus on “efficiency and simplification” with a “relentless focus” on customers and allocating capital to its most profitable businesses lines, according to the statement.
The company’s shares slumped 11% to C$31.86 at 11:46 a.m. in Toronto, after earlier dropping more than 12%, their biggest intraday decline since May 2020.
At least three analysts cut their recommendations on Laurentian: Cormark Securities Inc. and National Bank of Canada now have hold-equivalent recommendations, while RBC Capital Markets has an underperform.
“We had anticipated a buyer would step in to acquire LB, at below book value. That is clearly not the case,” National Bank analyst Gabriel Dechaine said in a note to clients, cutting Laurentian’s rating to sector perform from outperform and its share-price target to C$32 from C$45. “Without a major catalyst emerging from this strategic review, we believe LB’s stock will be under pressure, with new investors difficult to attract.”
Canadian banks are grappling with tougher capital requirements as their primary regulator forces them to carry larger buffers to cushion against an economic downturn — an impediment to acquisitions. They’re also vulnerable to potential financial stress in the household sector, due in part to an expensive housing market. Canadian households have C$1.80 ($1.30) in debt for every C$1 of income, according to a report this week from Statistics Canada.
The country’s six largest banks will be required to have minimum common equity tier 1 ratios of at least 11.5% as of Nov. 1, and there’s another review of capital buffers coming in December from the Office of the Superintendent of Financial Institutions.
Laurentian shares, which jumped on news of the strategic review, have fallen in recent weeks after Llewellyn declined to answer analysts’ questions about the process on Aug. 31. Some analysts had speculated that Laurentian would divest of Northpoint Commercial Finance, a fast-growing US division that specializes in lending for recreational products such as boats and ATVs.
Keefe, Bruyette & Woods analyst Mike Rizvanovic called it a “disappointing end to LB’s strategic review,” saying in a note to clients that the bank’s announcement provides “little clarity on how the current strategic plan might change moving forward.”
Laurentian plans to provide more details on its growth plans during its fiscal fourth-quarter earnings call on Dec. 7, and at an investor day early next year.
–With assistance from Mathieu Dion and Stephanie Hughes.
(Updates with share price, analysts’ downgrades starting in sixth paragraph.)
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