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Laurentian Bank has started strategic review and possible sale
July 13, 2023
2:31 pm
AltaRed
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July 13, 2023
3:17 pm
Norman1
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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.

July 22, 2023
7:23 am
Doug
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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.

Maybe. If they went that route, though, I don't see it resulting in a series of corporate spinoffs to existing shareholders; that's expensive. What I see happening is LB selling the shares in the subsidiaries or selling the assets and any liabilities of the subsidiaries to interested purchasers. They would then have surplus cash on the parent company's balance sheet, yes, but that doesn't necessarily mean special dividends. That would keep the same number of shares outstanding. Rather, what they would possibly do is a Significant Issuer Bid, or series of Significant Issuer Bids, likely on a bought-deal basis, to buy up and cancel 10-20% of their outstanding shares at a time. This results in significantly fewer shares outstanding holding hopefully proportionately fewer assets.

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.  

Possibly could go that route, yes. RBC did this with Ally Canada, when all they retained were the Ally GICs, at least to maturity, and the auto finance assets, then sold off the mortgage assets to, I think, MCAN Mortgage Corp. and the mortgage servicing rights to MCAP and closed all Ally HISAs.

Interestingly, this is also (similar to) the approach I maintain that Stephen Smith's Smith Financial Corporation intends to undertake with Home Capital Group in order to extract higher value for what is a middling bank struggling to compete with the Big 5 banks, digitally disruptive banks like EQ Bank, the fintechs, and the credit union system. I do not believe he intends for his holding company to own and operate a banking empire longer term; what I see as potentially happening there is for them to sell the mortgage origination and servicing rights to First National Financial Corporation, over which he holds a significant controlling equity stake, then sell (i.e., securitize) most or all of the mortgage portfolio. The remaining small credit card portfolio may also be included in a sale agreement to First National. In terms of the still sizable, but slower growing, deposit portfolio, I see a potential sale to Equitable Bank and Equitable Trust, respectively, perhaps in exchange for shares, or some combination of shares and cash, so as to arrange a larger controlling position in EQB Inc. This would give him very large controlling stakes in EQB Inc., First National Financial Corporation, Fairstone Financial/Fairstone Bank, and Canada Guaranty Mortgage Insurance Corporation (formerly AIG Mortgage Insurance Corporation), the latter of two which he co-owns with the Public Sector Investment Board.

Cheers,
Doug

July 22, 2023
7:58 am
AltaRed
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A number of possibilities, but whatever the case, it is time to put this sucker out of its misery.

July 22, 2023
8:43 am
savemoresaveoften
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Doug said

Possibly could go that route, yes. RBC did this with Ally Canada, when all they retained were the Ally GICs, at least to maturity, and the auto finance assets, then sold off the mortgage assets to, I think, MCAN Mortgage Corp. and the mortgage servicing rights to MCAP and closed all Ally HISAs.

Interestingly, this is also (similar to) the approach I maintain that Stephen Smith's Smith Financial Corporation intends to undertake with Home Capital Group in order to extract higher value for what is a middling bank struggling to compete with the Big 5 banks, digitally disruptive banks like EQ Bank, the fintechs, and the credit union system. I do not believe he intends for his holding company to own and operate a banking empire longer term; what I see as potentially happening there is for them to sell the mortgage origination and servicing rights to First National Financial Corporation, over which he holds a significant controlling equity stake, then sell (i.e., securitize) most or all of the mortgage portfolio. The remaining small credit card portfolio may also be included in a sale agreement to First National. In terms of the still sizable, but slower growing, deposit portfolio, I see a potential sale to Equitable Bank and Equitable Trust, respectively, perhaps in exchange for shares, or some combination of shares and cash, so as to arrange a larger controlling position in EQB Inc. This would give him very large controlling stakes in EQB Inc., First National Financial Corporation, Fairstone Financial/Fairstone Bank, and Canada Guaranty Mortgage Insurance Corporation (formerly AIG Mortgage Insurance Corporation), the latter of two which he co-owns with the Public Sector Investment Board.

Cheers,
Doug  

What u said is way too complicated and not what the board is looking for in my mind.
It will be a sale as a whole and buyer can strip out what it doesn’t want. That is the most likely scenario, if a sale does happen.
The real issue is the proper price given not all of LB are attractive businesses. I hope for book value which is $60+ but realistically a $50ish is most likely.

July 22, 2023
1:59 pm
Doug
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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. sf-cool

Cheers,
Doug

July 22, 2023
2:03 pm
Doug
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savemoresaveoften said

What u said is way too complicated and not what the board is looking for in my mind.
It will be a sale as a whole and buyer can strip out what it doesn’t want. That is the most likely scenario, if a sale does happen.
The real issue is the proper price given not all of LB are attractive businesses. I hope for book value which is $60+ but realistically a $50ish is most likely.  

I think $50-60 is over-valued. If sold piecemeal, they might be able to get to $35-40 per share for all of the remaining businesses excl. mainline Laurentian Bank (including LBC Digital), but I don't see how there's $15-25 in value for the mainline bank. That's literally the most troubled and worst asset.

Market is over-valuing it. Not sure what the option premiums are, but I'd probably prefer to be writing puts at these levels. sf-cool

Cheers,
Doug

July 22, 2023
3:25 pm
Doug
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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.

July 22, 2023
3:41 pm
AltaRed
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If I owned LB shares, I would have already sold them.

July 22, 2023
3:44 pm
Doug
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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

July 22, 2023
3:52 pm
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@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.

July 22, 2023
4:04 pm
Doug
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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. sf-cool

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

Cheers,
Doug

July 28, 2023
4:50 pm
Briguy
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Scotiabank and TD have decided not to bid on Laurentian, so deadline may run out with no buyers.

https://archive.is/RBSgs

September 14, 2023
9:59 am
Norman1
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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.

September 14, 2023
10:19 am
AltaRed
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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.

September 17, 2023
2:11 pm
Doug
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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

September 17, 2023
5:21 pm
Bill
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Doug, you say there's about 10 years before anything will happen (how did you come up with that length of time?) so it looks like no worries for depositers for a while, no?

And why stay "well under" CDIC limits, what's the difference between being a dollar vs. well under the limits?

September 17, 2023
5:52 pm
Doug
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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

September 17, 2023
5:56 pm
Doug
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Bill said
Doug, you say there's about 10 years before anything will happen (how did you come up with that length of time?) so it looks like no worries for depositers for a while, no?

And why stay "well under" CDIC limits, what's the difference between being a dollar vs. well under the limits?  

To the second question, I just mean being under including accrued but unpaid interest, not pushing it to the limit in principal terms but being over once accrued interest is paid. 🙂

To the first question, I am just forecasting 10 years as the period when I see their revenue-generating assets (i.e., mortgages) maturing or transferring out and their current deposits running off if nothing changes in terms of their customer growth. As it stands, they have a relatively higher than average age of customer, which isn`t good, either.

Cheers,
Doug

September 17, 2023
6:32 pm
Bill
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Thank you.

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