Laurentian Bank profit sinks on charges tied to system outage, restructuring efforts

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Laurentian Bank of Canada’s LB-T profit plummeted as it booked major fourth-quarter charges tied to a September system outage that led to the ousting of its chief executive officer, and restructuring efforts as it prepares to release an updated turnaround plan aimed at cutting expenses.

The Montreal-based bank’s net income slid 45 per cent to $30.6-million for the quarter ended Oct. 31 after it reimbursed customers that were unable to access their accounts during a multiday systems crash, and adjusted its strategy after years of underperformance. In mid-October, the bank removed chief executive officer Rania Llewellyn, the first woman to run a major Canadian-based bank.

Newly installed CEO Éric Provost, previously the head of personal and commercial banking, said Laurentian will launch a new plan in the spring of 2024 that will focus on improving its performance after “many years without results,” Mr. Provost said. The updated strategy would see the bank become more customer-focused, cut costs by simplifying its operations and improve technology platforms that could also boost revenue.

“The pace at which we were able to reduce costs and simplify this bank was not the right pace,” Mr. Provost said in an interview. “This is what we need to accelerate and put our energy into understanding how can we be simpler but better with our customers.”

Laurentian posted adjusted profit of $1 per share for the quarter ended Oct. 31, missing the $1.16 that analysts expected. A pretax charge of $5.3-million linked to the system outage reduced its earnings by 99 cents a share as the bank reimbursed customers for service fees in September and October in a bid to make amends for the technical issues.

On an unadjusted basis, the lender recorded earnings-per-share of 67 cents.

The lender’s personal deposits fell 1 per cent from the previous quarter, and business deposits slumped 4 per cent. The systems outage “had less of a negative impact on the balance sheet (namely deposits) than some had feared,” Scotiabank analyst Meny Grauman said in a note to clients.

The bank also booked pretax restructuring and strategic-review-related charges of $15.9-million, or 27 cents a share, as it slashed expenses.

Laurentian added that it expects to take a $6.5-million charge in the first quarter of 2024 as it continues to make reductions across its businesses, cutting its work force by 2 per cent, while trimming certain products and projects that it believes do not contribute to improving performance. The bank estimates the cuts will result in $8-million in annual savings.

Canada’s biggest banks also decreased their headcounts by about 2 per cent during the fourth quarter as the sector grapples with mounting costs.

Laurentian shares closed down $1.09 or 4.1 per cent at $25.30 on the Toronto Stock Exchange on Thursday. This year, the stock has tumbled 19 per cent, making it the worst-performing bank stock on the S&P TSX Composite Index.

Laurentian launched a bid to attract buyers this past summer as part of a strategic review, but called off the sale process after it failed to draw an offer that met the board’s expectations.

In late September, Laurentian’s systems crashed during a planned technology upgrade. Individual and corporate clients were unable to access their accounts or process transactions during the four-day outage.

Laurentian made a sudden executive shakeup in early October. The lender was more than a year and a half into completing its three-year strategic review under Ms. Llewellyn that sought to simplify the bank, focus more on specialized niches such as commercial equipment financing, and revamp its digital banking experience. This year, the bank missed all of the targets it set under the plan.

The bank has been caught in a period of turmoil marked by leadership turnover. In 2020, Laurentian abruptly changed CEOs, replacing François Desjardins and hiring Ms. Llewellyn from Bank of Nova Scotia a few months later. At the time, Laurentian was suffering from a string of weak results and had slashed its dividend.

Mr. Desjardins’s plan to modernize the bank, which included overhauling digital banking systems and closing nearly half its branches, was scrapped as costs mounted and revenue stalled.

While Mr. Provost would not comment on what elements of the previous strategic plan he would retain or eliminate, or on the removal of his predecessor, he said that the Laurentian had successfully expanded the commercial banking book and built its specialty focus.

Under Ms. Llewellyn’s plan, the bank would focus on specialty niches where it believed it could generate more revenue.

Its U.S. commercial financing business, Northpoint Commercial Finance, has been its fastest-growing division. The company lends to manufacturers and dealers of recreational vehicles, trailers, power sports products and other equipment. The business has ballooned since it was acquired in 2017, while its Canadian operations have remained relatively stagnant.