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Laurentian Bank is being split up and sold, its commercial operations going to Fairstone Bank of Canada in a $1.9 billion deal while National Bank is buying the retail and small business segment for roughly book value.
The deal is the culmination of years of struggle for the more than 175-year-old bank to turn itself around, or find a buyer willing to pay enough to satisfy shareholders.
Under the terms, the Laurentian name will live on as part of Fairstone with the head office of the commercial segment to remain in Montreal, and chief executive Éric Provost to continue in his role.
But its presence on the main streets of Quebec won't.
Laurentian's 57 branches won't be transferred over to National Bank, nor will its employees, who will instead have the option to apply for open roles at the bank.
The move will affect the majority of Laurentian's roughly 2,715 employees, though it's not clear how many will stay on as part of commercial operations at Fairstone.
The deal is an acceleration of Laurentian's push deeper into the commercial side, said Provost in a statement.
"Joining forces with Fairstone Bank will allow us to grow our specialized commercial business even further, while maintaining our brand," he said.
The commercial focus includes real estate lending, inventory and equipment financing, intermediary services and capital markets activities.
Laurentian customers will benefit from more services, and better technology at National, he said.
Part of Laurentian's struggles was its lag in adapting to new technology, with the bank only launching its first app a few years ago.
Under the deal, Fairstone Bank will pay $40.50 per Laurentian Bank share in cash, while the amount National Bank will pay will be based on outstanding balances at closing.
The Fairstone deal is subject to approval by a two-thirds majority vote by Laurentian Bank shareholders.
The Caisse de dépôt et placement du Québec, owner of about eight per cent of Laurentian shares, said in a statement that it supports the deal, given the competitive banking landscape.
The deal marks another big growth step for alternative lender Fairstone, which last year merged with Home Trust, leaving the bank with about two million customers and 255 branches. Before that, Home Trust itself grew after it was acquired by Smith Financial Corp. in a roughly $1.7 billion deal in 2023.
National Bank, meanwhile, will see its customer base expand as it takes on Laurentian's roughly $10.9 billion in retail loans and deposits and $1.4 billion in small and medium enterprise loans and deposits.
Overall, the deal looks about as good as could be expected, said Jefferies analyst John Aiken in a note.
"The sale of Laurentian Bank is an exit that benefits current shareholders with an exit that we did not view as likely."
He said the deal is also a boost for National.
"National not only benefits by increasing its scale in its home province but does not have to deal with the legacy issues associated with Laurentian's branch system," said Aiken.
"Getting the assets, deposits and mutual funds at book value is simply icing on the cake.”