Laurentian Bank of Canada will take $209-million in writedowns and other charges, which are expected to push the Montreal-based bank to a large fourth-quarter loss just as a recently overhauled management team prepares to reveal a new strategic plan next month.
The charges, which amount to $163-million after taxes, will deal a significant financial blow to the bank, which made $173-million in profit in all of 2019 – the last full year before the pandemic affected bank earnings. But they are also a signal that chief executive Rania Llewellyn, who took charge of Laurentian Bank 13 months ago, is ready to take the lender in a dramatically different direction after a year-long review of the bank’s plans and operations.
Though Ms. Llewellyn is withholding most of the details of her turnaround plan until an investor event on Dec. 10, the writedowns announced Tuesday frame a new approach to revamping the bank’s technology by striking partnerships with other companies and implementing an ambitious shift in culture that will make remote work the primary way of life for many of the bank’s staff. The restructuring is also intended to mark a turning point for Laurentian’s personal banking unit, which has struggled to retain customers.
“We believe these were necessary changes and will help reset and reposition the bank for sustainable, long-term, profitable growth,” Ms. Llewellyn said on a conference call.
When pressed by an analyst, she did not rule out the possibility of further charges. “Like any good operator, we’ll continue to review our operations,” she said.
The bank’s share price was down 4.5 per cent to $39.47 on the Toronto Stock Exchange on Tuesday.
The largest component of the restructuring charges is a $93-million impairment to be recorded in Laurentian’s personal banking segment. That includes a $35-million goodwill writedown to reflect the bank’s shrinking assets, but also software and equipment charges as the bank plans to shut down one of two parallel digital platforms, LBC Digital, and move customers using it to LBC Direct over the next 18 months.
The bank has also cut 64 jobs “across all levels” and paid $9-million in severance, with 60 per cent of the job reductions in Ontario and the rest in Quebec, said Yvan Deschamps, the bank’s chief financial officer. And it will slash its corporate office footprint by half in Toronto, Montreal and Burlington, Ont., taking a further $49-million charge as it shifts to a hybrid work model.
“Working from home will be the first approach for all tasks that can be performed remotely,” Mr. Deschamps said on the conference call.
The bank is abandoning the second and final phase of a plan to rebuild its core banking systems that was launched under previous CEO François Desjardins, who left the bank abruptly last year. That will result in a $38-million charge as the bank adopts a “plug-and-play strategy” that will allow it to integrate technology from partners, Ms. Llewellyn said.
Finally, Laurentian has adjusted its credit standards for its $2.3-billion investment loan portfolio, which has 30,000 accounts. The bank is speeding up a remediation process for the accounts and anticipates additional losses on some loans; it is increasing its provision for credit losses – the funds banks set aside to cover loans that may go bad – by $19-million.
The changes are expected to cut costs by $4-million in the fourth quarter and $20-million annually starting in 2022. Paul Holden, an analyst at CIBC World Markets Inc., said that is “a step forward” on getting the bank’s costs under control, but the retail banking arm’s lack of growth “is the No. 1 issue facing the company.”
The combined charges will reduce Laurentian’s earnings per share by $3.73, which is likely to push the bank to a large loss after earning $1.32 per share in the fiscal third quarter. Its common equity Tier 1 ratio – a key measure of a bank’s capital reserves – will decline about 25 basis points (100 basis points equal one percentage point) but will remain well above its target range.
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James Bradshaw