Laurentian Bank head office in Montreal, on Aug. 30.Christinne Muschi/The Canadian Press
Why is it that when Benj was recently looking at Laurentian Bank LB-T, Patti Page’s hit 1953 song How Much is That Doggie in the Window popped into his head? Is it simply because that was his first record or is it more: perhaps that he purchased the stock in 2018 at $39.56 and has watched the stock price woof away to the current level of $26.75?
As readers of our columns know, since we have been hanging out in The Globe and Mail for almost 25 years, it is rare that Benj buys a stock costing more than $10. But while searching for what appeared to be a stable dividend payer, he dove into LB for the $0.65 quarterly payout at $39.56. What a mistake that has turned out to be!
What happened? While revenues have stayed stable at around $1-billion, net income dropped to about $181-million last year from $227-million in 2022. This past quarter it dropped to $34-million. The nine-month net loss registered $46.2-million. This does include restructuring and impairment charges of $212-million. One year ago, net income for the same period was $150.5-million. This is not what one calls a positive trend.
This has led to management changes. One year ago, Éric Provost was promoted to president and chief executive officer from his position as group head of personal and commercial banking. He has been with LB since 2012 so he was very well-versed with the enterprise and what his new role would bring. Of course, the bank was also very familiar with him. The previous CEO was Rania Llewellyn, who did not make the three-year mark. She was hired after a 26-year career at Bank of Nova Scotia.
It appears that some customers have noted the bank’s turmoil and taken their business elsewhere. As of the end of July, deposits decreased by $2.7-billion to $23.2-billion from Oct. 31, 2023. Personal deposits of $20.1-billion were the bulk of the holdings. The book value sagged to $56.97, down about $2 from Halloween 2023.
Meanwhile, other banks have picked up some of the business. The five majors – Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank – routinely make better than $1-billion a quarter.
While pundits debate whether this sector is competitive, the majors in this field are feasting on the Canadian public. No question, there is room for Laurentian to grow and regain its place in the pantheon of Canadian banks, especially since it is based in Quebec along with BMO. This province wants to make sure that it has its own financial institutions. But the competition, especially since the other banks are so much larger, is quite stiff.
One point of concern about Laurentian comes from looking at the corporation’s website. Next to the title: “2015 to today: The new and improved Laurentian Bank,” the information only goes up to 2021. Hmm, that is a number of years ago. It makes us wonder about the bank’s attention to detail.
Benj has considered taking a tax loss with this position but decided that it was more worthwhile to hold as he feels quite secure that a turnaround is likely in the cards. Another possibility might be a takeover. LB conducted a strategic review in 2023 with the goal of selling the enterprise, but a deal was not struck. That does not mean that it will not come to pass. If it does, it will likely sell at a premium.
Founded in 1846, Laurentian has a storied past. Odds are that it still has many years left to operate in the competitive Canadian banking scene. Though not nearly as big as its brethren, it does have 128 branches and more than 2,000 employees. It is not a huge bank, though turning around a ship of this size will take time, especially to hit our initial sell target of $53.44, where it traded at points from 2011 to 2017.
Benj will hang on to his investment and consider taking a tax loss next year if it does not increase in price. Meanwhile, he will contemplate adopting another puppy.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter.