Laurentian Bank has struck a deal with Fairstone and National Bank after having launched an unsuccessful bid to attract a buyer in 2024.Christinne Muschi/The Canadian Press
Laurentian Bank of Canada LB-T has struck an agreement to be taken over by Fairstone Bank of Canada in an all-cash deal valued at $1.9-billion, while also selling its retail business to National Bank of Canada NA-T as part of the lender’s strategy to restructure its beleaguered operations.
Montreal-based Fairstone will combine its commercial lending unit with Laurentian’s in a bid to expand its market share. The sale, announced early Tuesday, follows years of efforts at Laurentian to turn around its business as it grappled with waning profits while its revenue flatlined and costs jumped.
Fairstone will acquire all common shares of Laurentian at $40.50 per share. The deal is at a premium of 20 per cent over the price of the stock’s close on Monday, the banks said.
“We view Quebec as a key market and are excited to continue building our presence with the expertise we’re acquiring from Laurentian Bank,” Fairstone chief executive officer Scott Wood said in a statement.
Laurentian Bank reports $37.5-million in third-quarter profit, drop in revenue
Laurentian Bank will maintain its brand and head office in Montreal. Laurentian CEO Éric Provost will continue in his role and will continue to oversee Laurentian’s turnaround plan.
Laurentian will concentrate on its remaining business in commercial real estate lending, inventory and equipment financing, and capital markets.
“Joining forces with Fairstone Bank will allow us to grow our specialized commercial business even further,” Mr. Provost said in a statement.
National Bank of Canada will purchase Laurentian’s retail and small and medium-sized enterprises banking books, as well as its syndicated loan portfolio.
As of July 31, Laurentian’s retail loans and deposit books were about $3.3-billion and $7.6-billion, respectively. Its small and medium-sized enterprises loans and deposits were about $800-million and $600-million.
“Leveraging our strong presence in Quebec, this transaction aligns with our domestic growth strategy and is a natural fit,” National Bank CEO Laurent Ferreira said.
The purchase will modestly boost National’s retail and small and medium-sized enterprises loans by 2.5 per cent and retail deposits by 6 per cent, according to Bank of Nova Scotia analyst Mike Rizvanovic.
The deal builds on a string of Canadian bank acquisitions in recent years, two of which involved Fairstone and National.
In February, National bought Canadian Western Bank to accelerate the lender’s reach into Western provinces in a deal valued at $5-billion. A month earlier, billionaire financier Stephen Smith had closed a deal to merge Home Trust Co. with Fairstone Bank of Canada.
Other recent bank deals included Royal Bank of Canada’s 2022 purchase of HSBC Bank Canada.
Laurentian’s sale will leave EQB Inc., the parent company of EQ Bank, as the final smaller publicly traded Canadian bank outside of the six largest lenders.
In May, 2024, Laurentian launched a plan to overhaul and streamline its business after a sale process in 2023 failed to attract a buyer. The updated strategy – the third turnaround plan in less than a decade – was launched after a multiday system outage prevented customers from accessing their accounting, which was followed by the sudden ousting of its CEO.
The plan was aimed at further simplifying its businesses and cutting costs by focusing on the areas where the bank believed it could compete against the larger lenders. That included expanding its commercial banking business, rejigging its personal banking unit to boost its deposit base and updating its digital and technology platforms.
But the bank has made tepid progress over the past year. In its third-quarter results released in August, loan growth was flat, dragged down by lower demand for personal loans and inventory financing.
Analysts and investors have been closely watching Laurentian’s efficiency ratio – a key metric of productivity that measures expenses as a percentage of revenues. In August, the lender posted a worsening adjusted efficiency ratio of 75.7 per cent, an increase from the same period a year earlier and well above Laurentian’s 60-per-cent medium-term target. (A higher ratio indicates less efficient operations.)
Laurentian does not report results for its individual businesses, but some analysts speculate that its personal banking unit has continued to struggle.
“Although not disclosed, we believe the Canadian retail business has likely been unprofitable for some time due to its inability to reach sufficient scale,” Raymond James analyst Stephen Boland said in a note to clients.
Despite the headwinds, Laurentian was making some progress on boosting its deposit base, and it expected demand for inventory financing to pick up in the new year.
Its common equity tier 1 (CET1) ratio – a measure of a lender’s ability to absorb losses – had edged higher to 11.3 per cent, well above the minimum level required by Canada’s banking regulator and providing it with ample room to ramp up lending.
After the deals close, Laurentian will shutter its branches in Quebec. The bank has 57 retail locations and more than 2,700 employees – although it is not clear how many of those staff work in branches.
Its employees will not be transferred to National. Instead, Laurentian’s affected staff will be able to apply for open roles at National.
Jefferies analyst John Aiken said the deal allows National to increase scale in its home province without having to manage the issues in Laurentian’s branch system. It is also buying the assets, deposits and mutual funds at book value.
“Laurentian’s elegant exit is National’s gain,” Mr. Aiken said in a note to clients.
Laurentian “faced an uphill climb against its competitors with greater scale, product and service capabilities, and efficiency, and the takeout of the bank was the logical, inevitable conclusion, albeit, much sooner than expected.”
Laurentian has been in a state of flux for several years. Weeks after the bank called off its sale process in September, 2023, its computer systems crashed during a planned technology upgrade. This led to the termination of CEO Rania Llewellyn, the first woman to run a major Canadian-based bank, while she was halfway through a three-year strategic review.
In 2020, former CEO François Desjardins was abruptly ousted after the bank terminated an overhaul of its digital systems and branch network.
Caisse de dépôt et placement du Québec, which holds about 8 per cent of Laurentian’s shares, said it has agreed to vote in favour of the acquisition, subject to certain conditions. The transactions are expected to close by late 2026.
Shares of Laurentian surged 18.5 per cent and National’s stock rose 1.7 per cent on the Toronto Stock Exchange Tuesday.