Ten months after naming a new CEO and launching a strategic review, Laurentian Bank of Canada LB-T shows few signs of turning around its peer-lagging financial performance.
On Friday, Laurentian announced a $34.1-million profit or 67 cents a share in the three months ended July 31, down 31 per cent from $49.3-million profit or $1.03 in the same period a year ago.
The Montreal-based bank earned 88 cents in adjusted earnings per share, which excludes certain items, slightly ahead of the 86 cents consensus forecast from analysts. In the same period a year ago, Laurentian’s adjusted earnings per share were $1.22.
Last October, after a multiday service outage and failed sales process, Laurentian’s board replaced chief executive officer Rania Llewellyn with Eric Provost, former head of personal and commercial banking. In May, Mr. Provost unveiled a new strategic plan focused on expanding Laurentian’s commercial lending business, focused on sectors such as real estate and retail. Over the summer, the bank cut staff in its capital markets business and sold two wealth-management business.
On Friday, analyst Paul Holden at CIBC Capital Markets opened a report on Laurentian’s results with the line: “Nothing to show a turnaround.”
Laurentian’s adjusted return on equity was 6.2 per cent in the most recent quarter, compared with 8.2 per cent in the same period last year. Earlier in the week, Royal Bank of Canada RY-T, the country’s largest lender, reported a 16.4-per-cent adjusted return on equity.
“Despite the small beat to the Street, Laurentian’s Q3 results illustrated that this story remains very much a work in progress,” said analyst Meny Grauman at Bank of Nova Scotia in a report on Friday. “Overall, Laurentian appears to be doing what it needs to do at this stage, but its turnaround remains fraught with significant challenges and continues to be a show-me story.”
On Friday, Mr. Provost said in a conference call Laurentian is well positioned to make more loans and boost profitability over the next year as interest rates fall and key clients, including real estate developers, increase their borrowing. He said despite the demand for housing across North America, many builders are delaying the launch of projects in anticipation of lower rates. Mr. Provost said: “Despite macroeconomic challenges, our strong capital position and strategic investments are setting the stage for future growth.”
Laurentian also expects to see increased demand for loans at its U.S. business, Northpoint Commercial Finance, which lends to dealers selling boats, ATVs and consumer electronics. Mr. Provost said this year that dealers kept relatively low inventory levels owing to concerns with customer demand, resulting in less demand for loans from Northpoint. Next year, Mr. Provost said Northpoint expects to see more demand for big-ticket consumer products and more demand for credit.
On Friday, Laurentian’s share price fell by 5 per cent on the Toronto Stock Exchange. Over the past 12 months, the bank’s shares declined in price by 33 per cent.
Last summer Laurentian ran a sales process that saw several domestic rivals kick tires at the bank. However, none of the potential buyers made an offer acceptable to the bank’s board and Laurentian shut down the auction in September. In the past two years, two major takeovers reshaped the domestic banking market, with Royal Bank of Canada buying the domestic arm of London-based HSBC PLC in a $13.5-billion acquisition and National Bank of Canada striking a deal to buy Edmonton-based Canadian Western Bank for $5-billion.