If they materialize, the steps taken by Laurentian Bank to put itself up for sale could lead to job losses, according to experts.
The financial institution, which has nearly 3,000 employees, confirmed that it had launched a strategic review process, in a press release released Tuesday after the markets closed. The process could lead to the sale of Laurentian.
For a buyer, cost reductions would represent an important factor in its decision to submit an offer, believes analyst Gabriel Dechaine of National Bank Financial.
In a banking industry dominated by large institutions, Laurentian’s size was a hindrance, because technological investments are often as important as for a large institution, but they are spread over a smaller pool of clients.
The analyst estimates that synergies could represent 50% of Laurentian’s cost base. “The decertification of the union in 2021 makes downsizing more easily achievable. »
Laurentian Bank has indicated that it does not intend to issue further comments before the end of the process.
If the regional bank were acquired by a player well established in Quebec, the acquirer would likely reduce the workforce, adds Louis Hébert, professor specializing in mergers and acquisitions at HEC Montreal. “It comes with a cost because we may end up with too many branches and too many staff,” he explains in an interview. If that were to happen, it would be a consolidation acquisition, with no doubt a search for fairly high cost synergies. »
The future of Laurentian’s Montreal headquarters was already the subject of concern since the president and CEO, Rania Llewellyn, resides in Toronto. Mr. Hébert believes that Laurentian’s head office is even more “in danger” with a possible sale. “All the promises of maintaining the registered office have an expiry date. »
This outlook comes as the labor market cools in the banking industry. The major Canadian banks had made significant efforts to seduce in a context of scarcity of labor and competition with employers in the technology sector.
The trend has been reversed while Laurentian, the Mouvement Desjardins and the Bank of Montreal have recently made layoffs. In May, Royal Bank President and CEO Dave McKay acknowledged that the nation’s largest bank had overestimated its needs “by thousands” at the height of the pandemic’s staffing issues.
A rising stock
The possibility of an acquisition was welcomed by investors, who gave the stock a nearly 27% boost on Wednesday.
The financial institution will however have to find a buyer and the game is not won, believes analyst Meny Grauman of Scotiabank. “While there is upside potential for the stock if a deal is reached, we are not sure that is possible. »
He questions the strategic appeal of an acquisition for the country’s six major banks. “We believe that the strategic value of its activities is limited, as we believe that the risk of customer retention is high, particularly in Quebec. »
On the contrary, Mr. Dechaine believes that Laurentian’s assets will attract the interest of the major banks because of the “considerable” synergy potential. He admits, however, that the bank is experiencing difficulties, even if it is ahead of the targets of its strategic plan.
“It doesn’t have a strong depositor base, it’s more exposed to lending in commercial real estate and its retail lending has been flat for a few years, to name a few issues. »
“Ironically, the reasons why the bank could be sold are the same reasons why long-term growth is limited,” he adds.
Which buyer?
Potential buyers will probably want to remain discreet so as not to show too much enthusiasm and harm their bargaining power, underlines Mr. Hébert.
Laurentian could interest the two major Quebec institutions, the National Bank and the Mouvement Desjardins, if they want to “consolidate the Montreal market,” says Mr. Hébert. “It could be an opportunity to get rid of a competitor,” he said in an interview.
Mr. Grauman also puts Desjardins Group at the top of potential buyers. “Even more so than the National Bank, which rules out the possibility of an acquisition whenever it has the opportunity. »
The idea that the RBC will probably pass its turn seems to have consensus, because it has not yet concluded the acquisition of the Canadian activities of the HSBC for 13.5 billion dollars.
For his part, analyst Doug Young, of Desjardins Capital Markets, believes that buyers will not be rushing to the gate. “RBC is busy with HSBC, TD has already strengthened its Canadian operations, BMO is integrating Bank of the West and National is not making acquisitions a priority in deploying its capital. »
“There’s still Scotia and CIBC, but we’re not sure why they would be interested,” he adds. Notably, the two banks participated in the auction on the assets of the bankrupt Silicon Valley Bank. »
Note that the President and Chief Executive Officer, Ms.me Llewellyn, had a career at Scotiabank before making the jump to Laurentian in October 2020.
Mr. Dechaine also sees Scotia as a potential acquirer, as the transaction would allow it to reduce the relative weight of its footprint in the United States. He seems less convinced for the CIBC. “CIBC would probably participate in the process, but we believe that it will want to expand its footprint in the United States instead,” adds the analyst from National Bank Financial.
The latter considers that the TD Bank would also be a good candidate while the cancellation of the acquisition of First Horizon Corp. raises questions about what it will do with its capital.
Laurentian stock jumped $8.93, or 26.63%, to $42.46 on the Toronto Stock Exchange at the end of trading Wednesday.