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Jun 1, 2020

'The cut we needed to make': Laurentian CEO on slashing the bank's dividend

This was the dividend 'cut we needed to make': Laurentian Bank CEO

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Laurentian Bank of Canada chief executive officer Francois Desjardins said his decision to cut the company’s dividend came with careful consideration, but didn't specify whether further reductions to its payout to shareholders will be necessary.  

“This is overall, a time for prudence,” Desjardins told BNN Bloomberg’s Amanda Lang Monday, several days after Laurential cut its dividend by 40 per cent after provisions for credit losses soared due to the COVID-19 pandemic.

"Although we still believe that the current earnings are not reflective of the future earnings, it is an uncertain economic time. We must go forward with an abundance of caution."

Effective with the payment in August, the Montreal-based bank’s quarterly dividend will fall to $0.40 per share.

“I thought long and hard about doing it,” Desjardins said. “If it wasn’t for COVID, I think that we would have earned our way back to the payout ratio that we had, which is 40 to 50 per cent. Our target has not changed.”

Laurentian was the only bank to announce a decrease in its payout to shareholders in the last round of earnings, a rare move for Canadian lenders.

Desjardins said cutting the dividend “improves our operational flexibility.”

“I think it’s a prudent move to reduce our dividend payout for the moment, continue reinvesting in growth in the company, and see our dividends grow at the pace that earnings are growing,” he said.

“This was the cut that we needed to make. I think it’s going to be good for the growth of the company – and in the end, good for the shareholders as well.”