Laurentian Bank of Canada is replacing chief executive officer François Desjardins after the bank posted a string of weak financial results and slashed its dividend in part because of the fallout from the coronavirus pandemic.
The Montreal-based bank announced Monday that Mr. Desjardins will retire at the end of June in a move made abruptly, with no permanent successor in place. The current head of personal and commercial banking, Stéphane Therrien, will take over as interim CEO.
The board of directors has already begun searching for a permanent successor.
Michael Mueller, who chairs the bank’s board, said Mr. Desjardins is leaving by “mutual agreement," but that “it did come about suddenly.”
“The most important role a board plays is in making sure it has a great working relationship with an entire management team,” Mr. Mueller said in an interview. “At this point in time, we’re happy with the transformation strategy we have in place, but it really is an opportunity and time to reinvigorate this plan and really to pivot toward customer growth.”
Mr. Desjardins has been CEO of Laurentian, the country’s seventh-largest bank, for nearly five years. He steered it through a tumultuous period marked by an ambitious plan to modernize Laurentian, overhauling its digital banking systems and dramatically reducing its branch network, from 150 locations to 83. At the same time, however, the bank’s revenue stalled, hovering around $240-million in each of the past six quarters.
In an interview with The Globe and Mail last Thursday, Mr. Desjardins gave no indication he would soon depart. He defended the bank’s recent decision to slash its dividend by 40 per cent, announced little more than two weeks earlier along with disappointing earnings for the fiscal second quarter. And even though the coronavirus pandemic had delayed the next steps in his plan – a seven-year strategy launched in late 2015 that stood out because of its length and ambition – he said “the end goal is still the same.”
Mr. Desjardins was not available for an interview on Monday,
Under his watch, the bank faced an array of challenges and, at times, stumbled. Contentious negotiations with the bank’s unionized employees dragged on for more than a year before Laurentian secured a new collective agreement last year. And Mr. Desjardins had to launch a top-to-bottom review of the bank’s mortgage portfolio when in late 2017, the bank found documentation gaps for certain mortgages, some of which were missing proof of assets or income, while others were improperly labelled as eligible for sale to third parties. Since then, the bank’s mortgage portfolio – once a source of strength – has shrunk, to $15.8-billion from $18.5-billion.
Laurentian’s share price fell about 42 per cent during Mr. Desjardins’s tenure as CEO, and declined another 1.5 per cent to $30.20 after the announcement of Mr. Desjardin’s departure. Like Mr. Desjardins, Mr. Mueller defended Laurentian’s decision to cut its dividend, saying it was “not an easy decision” but that “we needed to be prudent.”
As recently as early April, at the bank’s virtual annual meeting, Mr. Mueller said the progress the bank had made in its transformation plan reinforced the board’s confidence “in the group’s overall strategy and its leadership,” in prepared remarks.
“At the time, François was CEO of the bank, and that comment was absolutely appropriate,” he said in Monday’s interview. “It’s never easy to do this, and we’re in the middle of this pandemic. But you have to make tough decisions. And the right decision here is to pivot towards customer growth.”
Darko Mihelic, an analyst at RBC Dominion Securities Inc., said in a note to clients on Monday that Laurentian “needs stability and strong operational oversight” under its next CEO. “We are somewhat skeptical that ‘growth’ should be the focus," he said.
Mr. Therrien takes over as interim CEO after overseeing the expansion of Laurentian’s commercial banking arm. He is “certainly a very attractive candidate for permanent CEO,” Mr. Mueller said, and “provides the right skills, the right leadership” as the bank searches for a leader. “This is about the ability to execute,” Mr. Mueller said.
National Bank Financial Inc. analyst Gabriel Dechaine predicts that if Mr. Therrien is named as the bank’s permanent CEO, Laurentian could take a large restructuring charge and “we believe an equity raise is a high probability event.” The bank last issued $140-million in stock in the first fiscal quarter of 2018.
If the bank chooses an external candidate, Mr. Dechaine told clients he expects that person “could pursue more aggressive and transformational paths.”
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