What’s to become of Laurentian Bank (LB) after Tuesday’s announcement that its board of directors and management initiated a strategic review of its business to generate additional value for shareholders?
One outcome of the strategic review is that the company is officially put up for sale to the highest bidder, with numbers likely to be north of $2 billion.
Laurentian, which is the 12th-largest Canadian bank by market cap and eighth-largest by assets ($50.7 billion), is in the middle of a turnaround that started in October 2020 with the hiring of former Bank of Nova Scotia (BNS) Executive Vice President, Rania Llewellyn, as CEO.
Since taking the job, Laurentian’s share price has seen significant volatility, trading as high as $45 in February 2022 and as low as $26 when Llewellyn first took the helm. It hit highs not seen since 1989 on the review news, amid deal speculation.
Strategic Plan
Llewellyn introduced a three-year strategic plan at the bank’s December 2021 Investor Day. The plan focused on improving the customer experience, growing deposits, and increasing profitability.
“It has also been delivering on key milestones as set out in its plan, including closing its customers’ top five pain points with the launch of its mobile app and digital account opening solution, rolling out a re-imagined Visa experience, and growing Commercial Banking with a focus on its areas of specialization,” the bank’s July 11 press release stated.
Despite its difficulties, Laurentian would likely attract interest from other Canadian banks. Here are several possibilities.
Quebec’s Large Banks
Because of its smaller size, Laurentian wouldn’t face too many regulatory hurdles in a potential sale. Based in Quebec, National Bank (NA) and Desjardins would be interested in bringing the smaller bank into its fold.
National Bank and Desjardins have total assets of $418 billion and $407 billion, respectively.
Of the two, National Bank makes more sense as a buyer. Desjardins is currently moving to consolidate, focused on buying property and casualty insurers nationwide. Laurentian does have an insurance program through its financial network, but it isn’t a big part of the bank’s overall business.
Two Smaller Possibilities
In a potential merger of equals, both EQB (EQB) and Canadian Western Bank (CWB) could be candidates for such a deal.
CWB has focused on business customers, with Ontario its fastest-growing market. Its loan portfolio in the province is $9.3 billion, growing by 14% year-over-over. It accounts for 25% of the bank’s total loan portfolio.
However, Quebec accounts for just 3%. Combining with Laurentian would create a bank with more than $75 billion in loans to commercial and personal banking customers coast-to-coast.
As for EQB, it has $50.1 billion in loans outstanding. Approximately 64% are personal loans and mortgages, with 36% commercial bank loans and mortgages. Its personal banking business serves more than 492,000 Canadians, while its commercial banking unit works with 23,000 businesses.
In Q1 2023, EQB reported record quarterly earnings of $101.7 million, 10% higher than Q1 2022 and Q4 2022. EQ Bank was named the “Best Bank in Canada” for the third consecutive year. It added $8.1 billion in deposits in the first quarter, 12% higher year-over-year.
Of the two merger partners, EQB would be a better fit.
Big Six Rumblings
Canada’s banking system consists of several large banks, a handful of smaller banks such as Laurentian and the others mentioned, and a fairly robust credit union network across the country.
As a result, anytime a bank is put in play, the Big Six will be interested in a potential acquisition.
The only names that probably wouldn’t be interested are the Royal Bank (RY) and Bank of Montreal (BMO). RBC is in the middle of trying to close its $13.5 billion deal to buy the Canadian operations of HSBC Holdings (HSBC), while BMO paid US$16.3 billion in 2022 to acquire California-based Bank of the West.
Like most strategic reviews, very little information will surface until it’s been completed. The board may conclude that a sale is not in the best interests of shareholders at this time.
However, should Laurentian be put up for sale, the suitors will be aplenty.
This article originally appeared on Fintel
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