Laurentian Bank of Canada hit the market with a $60-million equity offering Friday morning, perhaps making some people think the bank is in a rough spot.
Don’t be scared. This move was well telegraphed.
During the last quarterly earnings conference call, chief financial officer Michael Lauzon suggested the bank may need to raise equity to provide it with a sufficient capital buffer. Before the issue, Laurentian’s Tier 1 tangible common equity ratio sat at 7.3 per cent under the new Basel III rules, just a smidgeon above the 7 per cent minimum applicable on Jan. 1, 2013.
Mr. Lauzon said the bank has three priorities, the first of which is high capital ratios. “You've seen other countries in the late days, that have increased their minimum requirements, and we don't know what might happen in the future, so having high capital ratios is the thing to do, and then also, depending on the market tones and market conditions, so we'll see if it's necessary or not in 2012.” At the time, he said a $50-million raise may be required in early 2012.
With a higher TCE ratio, can investors continue to count on dividend raises every other quarter? That’s unknown. On its last earnings call, Laurentian simply said that it will continue to review its dividend every quarter and assess the merits of a raise within the context of the market environment.