After a failed attempt to put itself up for sale and a computer outage that lasted several days, the Laurentian Bank was the Canadian bank that saw its bank deposits melt the fastest in August and September.
The size of bank deposits at Laurentian fell 3.3% in August and September to stand at 8.7 billion, according to data from the Office of the Superintendent of Financial Institutions.
This is the largest relative decline in a sample that includes the six major Canadian banks and the two largest regional banks (the Canadian Western Bank and the Laurentian Bank).
Laurentian ensures that its financial foundations are solid. “Laurentian Bank is in a solid position in terms of capital and liquidity,” responded its spokesperson, Merick Séguin, in a statement sent by email. Its funding sources and deposit base are stable and diversified. »
The financial institution is in a period of silence and must publish its next financial results on December 7.
On average, the size of amounts deposited in Canadian bank savings accounts fell by 1.5% during the months of August and September. The Canadian Western Bank, the Laurentian Bank and the National Bank posted a decline. Deposits are stable at the Bank of Montreal, while the other four financial institutions show modest growth.
An exodus of deposits is the “biggest risk” on the path of the Laurentian Bank, which faces numerous headwinds, judges analyst Gabriel Dechaine, of National Bank Financial, who issues a recommendation of “underperformance”.
The analyst judges that the IT breakdown which paralyzed the bank for several days at the end of September and led to the departure of its CEO, Rania Llewellyn, is not to blame for the movement observed in August and September.
It is difficult to conclude that the decline is attributable to the computer outage that hit the bank at the end of September, while the Canadian Western Bank experienced a decline of comparable magnitude.
Gabriel Dechaine, analyst at National Bank Financial
Opposing winds
Mme Llewellyn arrived in office in 2020 to turn around Laurentian at a time when it was lagging significantly behind in technology. Under his leadership, the bank made up part of this delay, notably with the launch of its mobile application. It also managed to achieve certain profitability targets.
However, these efforts have been slowed down by the recent difficult context for the banking industry. The Laurentian Bank launched a strategic review process in July which could have resulted in the sale of the institution. The bank was unable to find a buyer.
The computer outage lasting several days at the end of September forced the departure of Mme Llewellyn in early October. She was replaced by Éric Provost. His “immediate” priority “will be to restore trust with the Bank’s customers and deal with the consequences of the central system failure which occurred last week,” he declared on the day he took office.
Bank deposits are the most affordable source of financing for a financial institution while it must pay higher interest on fixed deposits such as guaranteed investment certificates (GICs) and on its corporate bonds.
If dissatisfied Laurentian customers transfer their savings accounts, its margins will come under pressure, warns Mr. Dechaine. He emphasizes that the Montreal bank is more generous than the six major Canadian banks with the interest it pays on GICs in order to remain “competitive”.
He adds that the cost of financing on the financial markets is also higher at the same time as the rating agencies are citing more negative prospects for the financial institution.
Investments linked to the IT outage could also put pressure on margins, he adds. “The remedy could include investments in technology, but also spending to retain customers. »