Laurentian Bank Shares Jump 26% on Launch of Review of Strategic Options

By Adriano Marchese

Laurentian Bank of Canada shares leaped after the Canadian bank said it would launch a strategic review of the business, which could include a potential sale that analysts say could entice Canada's bigger banks.

Late Tuesday, Laurentian Bank, a Schedule 1 bank that operates primarily in Quebec, said that its board of directors and management team are conducting a review of strategic options for the business.

Shares were 26% higher at 11:49 a.m., reaching 42.32 Canadian dollars ($31.98).

According management, the review's aim is to consider options that could maximize shareholder and stakeholder value, but didn't specify in which direction the review could go.

National Bank of Canada analyst Gabriel Dechaine says a sale could be a viable option of Laurentian, and in that case, all of Canada's 'Big 6' could be potential suitors.

Some would be better suitors than others, Dechaine notes, and in particular, both the Bank of Nova Scotia and Toronto-Dominion Bank would be keen candidates.

"Bank of Nova Scotia [is a candidate] due to a combined desire to gain market share in Quebec and by default to reduce the proportional earnings contribution of its international segment," Dechaine says in a report.

Meanwhile, he said Toronto-Dominion could also be a strong candidate for acquiring Laurentian given its large excess capital position and questions about its future capital deployment strategy after a $13.4 billion merger with U.S.-based First Horizon was called off.

Acquiring Laurentian would support earnings accretion for whoever buys it, the analyst says. The addition of Laurentian's business would introduce substantial expense and revenue synergies, which could yield single-digit earnings per share accretion.

Laurentian Bank said Wednesday that it has a strong capital and liquidity position and its funding and deposit base are strong, stable and diversified.

"If Laurentian Bank is indeed for sale, we believe a book value acquisition multiple is realistic," Dechaine says, pegging the acquisition price at about 2.6 billion Canadian dollars, roughly the equivalent of $1.96 billion.

However, the acquisition isn't without risks.

Dechaine says that the bank falls short in certain categories, namely a weaker core deposit franchise and an above-average exposure to commercial real estate lending.

Canada's 'Big 6' have been fairly active in the M&A space in recent months, most recently with Royal Bank of Canada's acquisition of HSBC Canadian arm for the equivalent of $10.1 billion in cash back in November.

The sale of Laurentian Bank wouldn't be wholly surprising to the analyst, who says that "a challenging growth outlook for Canadian banks and a stock price that has consistently hovered below book value and an unsolicited bid may have forced the Laurentian board's hand [to sell].

Write to Adriano Marchese at adriano.marchese@wsj.com

(END) Dow Jones Newswires

July 12, 2023 12:10 ET (16:10 GMT)

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