Laurentian Bank of Canada is launching a three-year plan to recast itself as a nimble alternative to the country’s big banks and leave behind a legacy of strategic missteps that have cost it customers and business.
The new strategy is the culmination of a year-long review of the Montreal-based bank’s operations, with a particular focus on its struggling mortgage business, which shrank in 2021 as competitors boomed. That reset has come at a price: The bank took $209-million in restructuring charges and impairments that triggered a $102.9-million loss in the fiscal fourth quarter, which ended Oct. 31.
On Friday, chief executive officer Rania Llewellyn presented a more optimistic outlook for the coming years at an investor event, acknowledging the turnaround will take time.
The path to better performance includes focusing on specialized sectors where the bank thinks it can be competitive – most notably commercial financing for inventory and equipment, as well as credit cards in personal banking. It involves making the bank simpler and more focused after years of strategic drift. And it will rely heavily on striking partnerships with outside technology providers to revamp a digital banking experience that trails rivals by a wide margin.
“There’s still a lot more work to do,” Ms. Llewellyn said in an interview. “We will be a distinct mid-sized bank that is a powerhouse in Canada going forward.”
She has a common refrain when describing Laurentian’s new strategy: “It’s not rocket science.” Her plan hinges on making lots of smaller fixes that should add up to better performance, many of them drawn from well-used financial sector playbooks. Some are basic, like instilling a performance-oriented culture by using scorecards to evaluate employees. Others are more challenging, like swapping out the bank’s entire system for processing mortgages to get faster answers for customers.
The bank also needs to add basic services that have been standard at other banks for years – it only launched a mobile app for smartphones this week, built in seven months using existing technology from Central 1 Credit Union.
Since Ms. Llewellyn arrived at Laurentian’s helm in October of 2020 – as the first woman to run the Quebec-based bank, and the first non-francophone to lead it since the Second World War – she has ushered in a wave of change. But there is plenty of heavy lifting still to come as the bank tries to reverse course after the abrupt departure last year of her predecessor, François Desjardins.
In particular, she said Friday that the personal banking arm had suffered from a strategy “without proper execution,” causing it to bleed customers, deposits and even employees. In response, the bank is revamping clunky processes to make it much faster for customers to apply for bank accounts, credit cards and mortgages. For example, Laurentian aims to shrink its time to approve mortgages from eight days to two days.
Her first big moves as CEO were to overhaul the bank’s senior management, largely with new faces from outside the bank including chief financial officer Yvan Deschamps and Karine Abgrall-Teslyk as head of personal banking.
Since then, Laurentian has slashed its costs, cutting 64 jobs and making plans to reduce its real estate in Toronto, Montreal and Burlington, Ont., by half, making remote working the first option for staff. Its ratio of expenses to revenue improved by more than four percentage points.
The engine of Laurentian’s growth will still be its commercial banking business, where loan balances increased by 11 per cent in the fourth quarter. The bank aims to boost the size of its commercial lending book from $14-billion to $18-billion and expand its U.S. loan book by 2024. It then hopes to refer more commercial clients to its capital markets division, where profits are on the rise, and to improve its competitive position in loan syndication and sustainable bonds.
Ms. Llewellyn is also putting greater emphasis on revitalizing the bank’s culture, as well as on issues of environmental, social and governance (ESG), which she thinks will help it stand out.
On Friday, Laurentian raised its quarterly dividend by 10 per cent, from 40 cents a share to 44 cents, signalling “our confidence in our future,” Ms. Llewellyn said. The bank slashed its dividend by 40 per cent to preserve capital in the early months of the COVID-19 crisis. Now, it has $300-million in extra capital and plans to buy back up to 2 per cent of its shares.
Laurentian’s fourth-quarter loss, driven by impairment charges, was equal to $2.39 a share, compared with a $36.8-million profit, or earnings of 79 cents a share, a year earlier. Adjusted to exclude one-time items, the bank beat analysts’ expectations with a profit of $1.06 a share.
The bank predicts that earnings per share will rise by at least 5 per cent next year, and 7 per cent to 10 per cent in the medium term – “ambitious” targets, according to National Bank Financial analyst Gabriel Dechaine.
“We’re starting from such a low base that all I see is upside,” Ms. Llewellyn said.
Laurentian Bank shares rose $2.15, or 5.7 per cent, on Friday to $40.19.
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