Laurentian Bank’s size and the timing of its strategic review made it a less appealing option for acquisition by a larger bank, experts say. 

On Thursday, Laurentian Bank announced it ended its strategic review, first announced on July 11, without a deal, instead deciding its best path forward is accelerating its current plan and focusing on efficiency. 

This comes almost a year after RBC announced its planned takeover of HSBC Canada for $13.5 billion. Canada’s Competition Bureau approved that deal earlier this month with the plan scheduled to finalize in the first quarter of 2024. 

Carl De Souza, senior vice-president of North American financial institutions at DBRS Morningstar, said HSBC found a buyer because it is a more appealing bank compared to Laurentian.

“(HSBC) had very high (return on equity) and an attractive customer base and things that made it appealing to many of the big six,” he told BNN Bloomberg in a television interview, adding that Canada’s larger banks were in a solid position for acquisitions when that buying opportunity arose.
“It came to market at a time where, for example, RBC was flush with capital,” he said.

While HSBC’s timing was advantageous for a deal, Laurentian’s was not, De Souza added.

“The large Canadian banks, several of them have either large acquisitions where they’re trying to integrate and they’re trying to close,” he said. “There’s a lot of things going on there.”

Mike Vinokur, portfolio manager at MV Wealth Partners with iA Private Wealth, said Laurentian may have been asking too much of potential buyers.

“The shareholders and board members perhaps thought that they could get closer to book value, and strategic buyers at this point in the cycle are saying: ‘You know what, we will buy in at a good price, but it has to be a good price,’” he said.

‘TOO SMALL TO MOVE THE NEEDLE’

Gavin Graham, contributing editor of The Income Investor and Internet Wealth Builder newsletters, said he was not surprised by the development. He believes the Laurentian Bank’s size did not make it an attractive option for Canada’s big financial players.

“Laurentian’s really too small to move the needle for any of the likely purchasers,” he said. 

“HSBC Canada was big enough to make a difference even to the biggest bank in Canada – Royal Bank (of Canada) – whereas Laurentian Bank has always been seventh or eighth largest in terms of assets and probably the banks that looked said: ‘It’s not going to make a big enough difference to pay the premium.’” 

OUTCOME WAS EXPECTED

Scotiabank’s Global Equity Research called the Laurentian's news “neutral” as it falls “in line with what we believed was the most likely outcome.” 

“We view this announcement as neutral because over the past few weeks it has largely become the consensus view, and is now almost fully reflected in the shares current valuation,” the report stated. 

Meanwhile, RBC Capital Markets deemed the chances of Laurentian seeing a deal in the next two years “very low.”

 With files from The Canadian Press