Laurentian Bank says no deal yet in search for buyer

Open this photo in gallery:

Laurentian Bank of Canada LB-T is continuing its search for a buyer after a few months on the auction block while it continues to work through its three-year turnaround plan.

In mid-July, Laurentian Bank said that it is “conducting a review of strategic options” after The Globe and Mail revealed the lender is exploring a sale. Canada’s ninth-largest lender said in its third-quarter release Thursday that the process is still under way and that it does not plan on providing further details until it is complete.

“It’s business as usual,” Laurentian chief executive Rania Llewellyn said during a conference call. “And once the review is completed, that’s when we’ll be providing additional comments.”

The move to sell stunned analysts and investors as Laurentian Bank was halfway through its three-year strategic plan to overhaul its business after years of weak performance.

Since launching the plan, the bank has revamped its digital banking experience and trimmed its operations to target specialized niches. Currently in the second phase of the turnaround, Laurentian has been focused on growing its deposit base and further simplifying its business.

A breakdown of the big banks’ third-quarter earnings so far

Laurentian said Thursday that the bank is still committed to its strategic plan. Ms. Llewellyn said that since the launch of its turnaround plan, the bank has exceeded all of its financial targets “against the backdrop of an increasingly challenging macroeconomic environment and market volatility.”

But Laurentian is still grappling with issues in its business. Its return on equity – an industry metric that measures profitability – has hovered below 10 per cent, significantly lower than its rivals. In the third quarter, it slipped to 1.5 per cent to 6.9 per cent as it spent on projects in an attempt to grow its business. That could weigh on the bank’s valuation and offer a bidder an opportunity to buy the lender at a discount.

The bank also booked a charge of $2.7-million related to the strategic review, as well as $5.5-million in restructuring costs to trim its capital markets business.

Ms. Llewellyn declined to respond to analyst questions on the timeline for the review and the factors that prompted it to explore a sale in the midst of its overhaul strategy.

The bank’s shares fell 3.6 per cent on Thursday in Toronto, while the S&P/TSX Composite Banks Index declined 1.1 per cent.

“The shares could be under pressure today as no news (rightly or wrongly) is viewed as a sign that the odds of a sale are lower than expected,” Scotiabank analyst Meny Grauman said in a note to clients. “In the event of a transaction we don’t see high odds that the purchase will be above the current share price.”

Some competitors have approached the bidding process with muted interest. Toronto-Dominion Bank TD-T and Bank of Nova Scotia BNS-T were considered potential buyers. In late July, The Globe reported that both had pulled out of the race.

Royal Bank of Canada RY-T is currently seeking approvals on its proposed $13.5-billion takeover of HSBC Canada, the country’s seventh-largest lender. Bank of Montreal is working toward completing its integration of California-based Bank of the West by early next week. Canadian Imperial Bank of Commerce CM-T has said its priority is expanding its existing business as it builds its capital reserves and National Bank is focused on expanding outside of its base in Quebec.

Laurentian has 57 branches and $51-billion in assets, a fraction of the size of its larger competitors. The bank focuses on commercial loans in Quebec, Ontario and the United States, which are target growth opportunities for its rivals.