Laurentian Bank of Canada LB-T is up for sale, with larger rivals now circling the country’s ninth-largest lender in pursuit of a deal that would continue a trend toward consolidation in financial services, sources say.
Laurentian Bank confirmed in a press release that it is “conducting a review of strategic options” after The Globe and Mail revealed the lender is exploring a sale.
Laurentian’s board of directors recently hired financial and legal advisers to quietly shop the Montreal-based bank to potential buyers, according to four sources with knowledge of the process. Two of those sources said Laurentian is believed to have received a bid from an undisclosed rival bank that helped spur the sale process.
The Globe and Mail is not naming the sources because they are not permitted to discuss the confidential sale process.
Laurentian Bank is in the midst of a turnaround plan after its profitability and stock price significantly underperformed those of rival banks for several years. The bank has made some headway at revamping its fortunes under chief executive officer Rania Llewellyn. But it faces headwinds as growth in its loan book is expected to slow, profit margins are starting to come under pressure and Canada’s banking regulator is asking financial institutions to hold more capital.
Since late June, Laurentian has been in talks with several suitors, according to the four sources. Laurentian has hired JPMorgan Chase & Co., which ran last year’s sale of HSBC Canada for its British parent, three of the sources said. The bank has also hired Osler, Hoskin & Harcourt LLP as legal advisers, one source said.
Laurentian declined a request for comment beyond the contents of the press release. In its statement, the bank said that while the review is under way, its management team is continuing to pursue its strategy and priorities “with the full support and confidence of the board.”
JPMorgan Chase & Co. declined to comment.
Founded in 1846, Laurentian has 57 branches and $51-billion of assets, and its core business is commercial loans to clients in Quebec, Ontario and the United States.
Based on recent transactions, including the proposed sale of 130-branch HSBC Canada to Royal Bank of Canada RY-T, a Laurentian takeover could cost between $2-billion and $2.8-billion. The bank’s book value is approximately $2.8-billion, and the market value of the company’s shares was $1.45-billion as of late Tuesday, which is a steep discount to its book value.
One potential suitor is Bank of Nova Scotia BNS-T because its executives have repeatedly said in recent years that it is a priority to expand its operations in Quebec and British Columbia, where the Toronto-based bank thinks it is underrepresented, especially in commercial banking.
Large Quebec-based financial institutions National Bank of Canada NA-T and Desjardins Group could be considered natural contenders, but National Bank has signalled that it is more focused on expanding existing operations outside of Quebec. Bank of Montreal BMO-T and Canadian Imperial Bank of Commerce CM-T could also consider bids. But BMO recently closed its US$16.3-billion takeover of California-based Bank of the West, and CIBC has said its first focus is on expanding its existing business as it looks to build up its capital reserves.
The country’s two largest banks – Royal Bank of Canada and Toronto-Dominion Bank TD-T – are not expected to bid for Laurentian, the sources said. Royal Bank still needs approval for its proposed $13.5-billion takeover of HSBC Canada, the country’s seventh-largest lender. TD is focused on expansion in the U.S. market.
Spokespeople for Scotiabank and CIBC declined to comment. Spokespeople for the other four largest banks could not immediately be reached for comment.
Laurentian’s decision to look for a buyer follows the bank’s board conclusion that shareholders would be better served by owning a portion of a larger platform, rather than trying to compete against far larger rivals. According to one source, Laurentian’s board and Ms. Llewellyn were frustrated by losing out this year in the bidding war for mortgage lender Home Capital Group Inc., purchased in April by entrepreneur Stephen Smith for $1.7-billion.
Laurentian Bank is only slightly more than half way through a three-year turnaround plan that sought to reframe the lender as a nimble alternative to the country’s largest banks, and to move on from costly missteps in the preceding years.
In 2020, the bank abruptly changed CEOs, parting ways with François Desjardins midyear and hiring Ms. Llewellyn from Bank of Nova Scotia a few months later – a non-francophone who became the first woman to run a major Canadian-owned bank. At the time, Laurentian was suffering from a string of weak results and had slashed its dividend.
An ambitious plan to modernize the bank under Mr. Desjardins, which included overhauling digital banking systems and closing nearly half its branches, was ultimately scrapped as costs mounted and revenue stalled. Instead, Ms. Llewellyn mapped out a turnaround plan after a year-long review that would simplify the bank, focus more on specialized niches such as commercial equipment financing, and rely on outside partnerships to revamp its digital banking experience.
It wasn’t until late 2021 that Laurentian introduced a mobile banking app for smartphones, relying on technology from a partnership with a credit union.
Ms. Llewellyn acknowledged at the outset that the turnaround would take time. In a report published in June, analyst Darko Mihelic at RBC Capital Markets said Laurentian’s loan growth is slowing as interest rates rise, and this will reduce future profitability.
In 2021, Laurentian decertified what had been the only unionized work force at a Canadian bank. Analysts said the move made the bank a more attractive takeover target.
Laurentian has 3,100 employees and made a $226.6-million profit last year. The bank is a fraction of the size of rivals – Scotiabank has 91,000 employees, nearly 2,400 branches and made $10.7-billion last year.
As part of the sale process, Laurentian has set up a data room, where potential buyers can view confidential financial information, two of the sources said.
The federal banking regulator and federal Finance Minister would need to approve a takeover of Laurentian. If the bank is sold, with government approval, it would continue a trend of the six largest banks expanding by snapping up rival lenders, wealth managers and trust companies. TD Bank, for example, vaulted to the top ranks by size when it acquired Canada Trust 23 years ago.
A Laurentian takeover could also put pressure on other small rivals, such as Edmonton-based Canadian Western Bank, to consider selling themselves.