Laurentian Bank announced it will cut roughly 10 per cent of its work force over the next 12 months as the Montreal-based lender reported a steep drop in financial first quarter profits.
The bank said Wednesday it is “streamlining certain back-office functions,” largely related to supporting its retail services operations and expects to cut roughly 350 employees through attrition, early retirement and targeted job reductions over the next 12 months.
The move is “consistent with our transformation plan and should be of no surprise to anyone that we’re moving toward focusing on advice, and reducing head count and more administration positions,” its chief executive Francois Desjardins told analysts on a conference call Wednesday.
The staff cuts, once executed, are expected to save roughly $15-million to $20-million on an annual basis, executives said on the call discussing its latest results.
The announcement comes as Laurentian reported a deep drop in first-quarter profits.
The bank reported a 33 per cent year-over-year decrease in net income, or 38 per cent on a diluted per share basis. Laurentian’s first-quarter net income totalled $40.3-million, down from $59.7-million during the same period a year earlier. Its earnings for the quarter ended Jan. 31 amounted to 88 cents in diluted earnings per share, down from $1.41 one year ago.
On an adjusted basis, Laurentian reported net income of $44.7-million or diluted earnings per share of 98 cents, down from $63.2-million or $1.49 per share a year ago.
Analysts on average expected adjusted diluted earnings of $1.29 per share, according to those surveyed by Thomson Reuters Eikon.
Desjardins said Laurentian’s performance this quarter was impacted by “lower capital market revenue.” Laurentian is the latest Canadian lender to see their markets-related revenue come under pressure from volatility seen on North American stock markets late last year.
Still, he said, the bank remains committed to achieve its midterm targets.
However, its latest earnings marked the third consecutive quarter that it reported a significant earnings miss, said Scott Chan, an analyst with Canaccord Genuity.
“We view the results as low quality with revenue down nine per cent, year over year,” he said in a note to clients.
Laurentian’s earnings fell short on multiple fronts, said Robert Sedran, an analyst with CIBC Capital Markets.
“It is not often that we overestimate every earnings driver, but that is what happened this quarter,” he said in a note to clients. “Each revenue category, total expenses and even the loan loss line (admittedly still strong) created negative variances, with the only positive offset being a lower-than-normal effective tax rate.”
Desjardins said its expenses as it looks to revamp the organization will weigh on short term results but will abate over time. It is also facing higher regulatory costs and increased costs due to labour relations – as the bank negotiates with the labour union representing roughly 1,200 of its 3,700 employees – but expects the latter costs to lessen once an agreement is reached.
Laurentian has over the years taken steps to streamline its organization, including merging several of its branches. The bank said Wednesday the conversion of its retail branches to advice-only branches is expected to be completed by the end of 2019 as it moves toward its goal of achieving a profitability level similar to other Canadian banks by 2022.
The bank has made “significant progress,” thus far, said Desjardins.
“The road to becoming a better and different bank – one that is relevant to today’s customers and one that delivers a higher performance than historically – is an exciting, challenging, and sometimes bumpy one.”