Laurentian Bank slashes dividend by 40 per cent as profits tumble - The Globe and Mail

Laurentian Bank of Canada slashed its dividend by 40 per cent on Friday following a sharp drop in profit, becoming the first large Canadian bank to cut its dividend payout in nearly 30 years.

The Montreal-based bank reported a 79-per-cent drop in profit for the three months ended April 30, with net income falling to $8.9-million from $43.3-million in the same quarter last year. This was largely due to a spike in provisions for potential loan losses tied to weakening economic conditions caused by the COVID-19 pandemic.

Laurentian responded by cutting its dividend to 40 cents a share, down from 67 cents. This is the first time a large Canadian bank has cut back dividend payouts since National Bank of Canada did so in 1992, according to data from Refinitiv.

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“Although we believe that current earnings are not reflective of the future earnings power of the organization, we have reduced the dividend to $0.40 per share which improves operational flexibility until we reap the anticipated benefits of our strategic plan,” chief executive François Desjardins said in a press release.

Laurentian shares fell more than 9 per cent in trading Friday morning.

The bank’s earnings cap off a week of dismal results from Canadian banks, which saw profits eviscerated by a rise in loan loss provisions due to expectations of future defaults and weakening credit. Laurentian, a regional bank which focuses primarily on Quebec, managed to keep revenues flat on a year-over-year basis. But higher provisions slammed the bottom line.

Laurentian recorded $54.9-million in provisions for credit losses, compared to $9.2-million a year ago. Gross impaired loans, which are loans that the bank does not expect to be paid back in full, rose to $235-million, up 25.8 per cent year-over-year. The biggest increase in loan impairment came from the bank’s commercial loan book, where gross impaired loans rose 42 per cent year-over-year.

The results were worse than analysts had anticipated. The bank reported an adjusted earnings per share of $0.20, well below the $0.38 average that analysts had expected, according to Refinitiv data.

In a note to clients, National Bank analyst Gabriel Dechaine noted that the miss was driven by a combination of higher than expected provisions for credit losses and elevated expenses, which were partially offset by a lower-than-forecast tax rate.

“While necessary, a 40 per cent dividend cut may be viewed as insufficient, as pro forma payout ratios are still elevated,” Mr. Dechaine wrote.

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The bank’s capital position deteriorated slightly in the quarter, with the closely watched common equity tier 1 ratio falling to 8.8 per cent from 9 per cent.

“This level of capital provides the Bank with the flexibility to pursue organic growth, as well as to continue to invest in the implementation of our core banking system,” the bank said in a news release.

However it added that it expects “regulatory capital ratios will remain below the level observed over the recent quarters.”

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2020-05-29 17:27:00Z
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