Laurentian Bank has started strategic review and possible sale | Page 2 | LBC Digital | Discussion forum

As well, the union represented only around 20% of Laurentian Bank employees, according to the Montreal Gazette article. In that 20%, 56% voted in favour of the decertification.

A number of possibilities, but whatever the case, it is time to put this sucker out of its misery.

AltaRed said
A number of possibilities, but whatever the case, it is time to put this sucker out of its misery.  

Agreed 100%. I know there is a small contingent of Quebec nationalists that will try and save it from being swallowed up, but I don't think Laurentian Bank carries enough weight in Quebec as maybe it once did. Even if we assume it did, the Minister of Finance cannot just reject any bank merger or sale. A lot larger bank mergers or sales have have already been approved or will likely be approved early in 2024. They would need to be able to cite the ways in way it would substantially lessen competition that couldn't otherwise be mitigated. I don't know how a bank with predominantly grey- and blue-haired Quebecers across a remaining branch network of 30 branches would result in a substantial lessening of competition.

Could the Quebec government emerge as a "white knight" with a nationalistic bid to nationalize it as a provincially-owned bank? Maybe, but they'll have to pay up to do that, and I don't think that would be fiscally prudent for them to do so.

If it's bought up en masse, my preferred bidder is Scotiabank. They're pretty good at extracting any legacy costs.

Cheers,
Doug

According to The Globe and Mail's Andrew Willis, writing in The Globe and Mail Online on July 12, 2023, there is an increasing likelihood that, when Laurentian Bank's board-initiated strategic review concludes, the end result will be to proceed with the status quo—which is to continue its business transformation (Willis). That would include the technology and operational transformation, potential customer and business exits, and business divestitures. Since it's paywalled, I'll highlight the key elements and quote relevant passages.

For starters, Willis writes that the primary reason for this is because of the fact that Laurentian Bank's board itself initiated the strategic review, and not based on an unsolicited offer, will mean any potential bidders will make low-ball offers. The second reason echoes what I said above, that Northpoint Commercial Finance is Laurentian's "best asset and where it significant chunk of its income. Northpoint’s business includes lending to buyers of Jet Skis, ATVs and motorbikes, clients whose disposable income drops when the economy cools and interest rates rise" (Willis). It also says that it "lacks scale" in retail banking and profitability is effectively elusive for the majority of the rest of its business (Willis). Whereas HSBC Canada commanded an impressive 2.4x book value, it had a fairly decent 15x ROE (Willis). Laurentian's most recent calculated ROE was 9.3x. Citing investment banking analyst Mike Rizvanovic at Keefe, Bruyette & Woods, writing in a research note, "the bank will only fetch about 0.75 times its book value, or roughly $2-billion, 'which we believe is reasonable given Laurentian’s ROE.'" (Willis). Because of that, Laurentian's board of directors will be faced with the unappealing prospect of having to tell investors it's in their best interests to sell the firm at well below its stated book value, and so, Laurentian Bank CEO Rania "Llewellyn is already lobbying the board to stay the course, rather than hand the bank to the highest bidder" (Willis).

Willis goes on to say while BMO, TD, or Scotiabank may be interested in the business, again, at below book value, in order to wring out significant costs from the business and conduct mass layoffs and technology migrations, it says that only TD of the Big Five banks is positioned to acquire Laurentian Bank without raising capital (i.e., issuing common shares) of between $800 million and north of a billion (Willis). With the Canadian banks' shares at or near 52-week lows, that makes it more of an expensive proposition than it otherwise would be. 🙂

Work Cited
Willis, Andrew. "There’s Limited Interest in Laurentian Bank, Unlike HSBC: When 130-Branch Bank HSBC Canada Went Up on the Auction Block Last Fall, Bidders Filled the Room, but the Bidding Will be Far Less Heated as Laurentian Bank of Canada and its 57 Branches Come on the Block." The Globe and Mail Online, July 12, 2023.

AltaRed said
If I owned LB shares, I would have already sold them.  

Same. There might be an outside chance a they could get $46 per share, if they sell for 0.75% of book value, but there's a lot of risk.

I've also sold my EQB shares and most of my CWB shares, too.

Cheers,
Doug

Briguy said
@Doug, don't you think Scotiabank would be better off spending their money on a US bank acquisition rather than Laurentian Bank ? They have invested heavily in Latin America, but have no presence in the USA.  

Doubtful. Scotiabank's always avoided the U.S. retail market, and I don't see them wanting to enter the market, at least in terms of retail banking. They may be interested in a U.S. asset manager for the right price. If Horizons and/or parent Mirae Asset was ever to come up for sale, I would expect they might be interested in either of those assets. 🙂

Scotiabank has also sold off and/or completing sales of its Latin American businesses except for four core markets and Mexico.

HSBC has essentially exited the U.S. market, save for a number of branches that can be counted on two hands or less. It's exited the U.S. market. It's exited all Latin American markets except for some trust services and private wealth business in Bermuda and, interestingly, its Mexican business, which brought about its de facto "guilty plea" to corroborating with Mexican drug cartels to launder funds.

Citigroup is marketing its Banamex, with the likely bidder expected to be another domestic Mexican bank.

Cheers,
Doug

Review done. No buyer:

Laurentian Bank Concludes Review of Strategic Options

Montréal, September 14, 2023 — Laurentian Bank (TSX: LB) (the “Bank”) announced today that it has completed its review of strategic options aimed at maximizing shareholder and stakeholder value with the support of independent financial and legal advisors. Based on the review, the Board, with the support of the Executive Management Team, has unanimously concluded that the best path forward to drive shareholder value is to embark on an accelerated evolution of its current strategic plan with an increased focus on efficiency and simplification.

Laurentian Bank is a much stronger organization today than it was three years ago. Building on the momentum of its turnaround, and its strong track record of delivering against its plan, the Bank will be simplifying its organizational structure and focusing on where it can win by allocating capital and resources to its highest grossing businesses and specialized products while maintaining a relentless focus on the customer.
…

AltaRed said
Looking at a 6 month chart of LB and wondering what the sods (speculators) who bought back in July at $42+ might now be doing other than pouring a stiff drink to try and forget. The market got this one reasonably correct with the slide back to $36 or so before this announcement.

I speculate the share price bleed is not over yet. Tax loss selling season will start in November.  

Agreed. I`d put a 12-month price target on LB stock at about $15 ($20 if I`m being generous).

Declining revenues, declining core business, declining core business unprofitability show this is a slow motion trainwreck that will likely end up in LB forced to either (a) sell assets at lower levels or (b) regulators ultimately called in in about 10 years from now to force a takeover of their core banking business.*

* Assuming nothing material changes, positively, in their customer, asset, and deposit growth measures between now and then.

Definitely stay well under your CDIC limits with Laurentian Bank and its subsidiaries.

Cheers,
Doug

AltaRed said
If LB was to be sold in parts, it would be a complicated process of the corporate LB parent spinning off each business for, most likely, cash and then corporate LB spinning off special dividends (or maybe ROC) to its shareholders Brookfield style for each of the parts. Taken to the very limits, LB shares could end up having zero value.

What I see more likely is a corporate buy and then the acquirer selling off, or shutting down, the pieces it does not want. It's all pure speculation until it happens.  

Maybe. Or they could do asset sales and instead of paying special dividends in the form of return of capital, they could simply buy back the shares as a Significant Issuer Bid (i.e., Home Capital Group or Imperial Oil Ltd style).

Agree that someone buying the whole business, good and warts, and closing, running off, or selling the warts is more likely, though.

Cheers,
Doug

Thank you.