MONTREAL

Laurentian Bank is set to undergo a significant transformation: it will be divided and sold. The commercial operations will be transferred to Fairstone Bank in a deal valued at $1.9 billion, while its retail and small business sector will go to National Bank for a price close to book value.

This move marks the end of a long struggle for the 175-year-old institution, which has been trying to either turn things around or find a buyer willing to meet shareholder expectations.

As a part of this agreement, the Laurentian brand will still be associated with Fairstone, and the headquarters for the commercial division will stay in Montreal. Eric Provost will continue his role as CEO.

However, it’s worth noting that the bank won’t maintain a presence in main streets across Quebec.

National Bank won’t be taking over Laurentian’s 57 branches, leaving employees the chance to pursue open roles within National Bank instead. This situation will impact a majority of Laurentian’s roughly 2,715 employees, although it’s uncertain how many will stay with Fairstone.

Provost commented that this deal will speed up the expansion of Laurentian’s commercial operations, stating that the partnership with Fairstone will support the growth of their specialty commercial business while keeping their brand intact.

The focus areas for their commercial services will include real estate financing, inventory and equipment loans, brokerage services, and capital markets activities. He also mentioned that Laurentian customers might see advantages with National’s broader array of services and enhanced technology.

One of the challenges Laurentian faced was its slow adoption of new technology, as it only launched its first app a few years back.

According to the agreement, Fairstone Bank will acquire each share of Laurentian Bank for $40.50 in cash. The payment from National Bank will hinge on the outstanding balance at the time of closing.

This acquisition by Fairstone needs the green light from two-thirds of Laurentian Bank shareholders.

Support for the deal has come from the Quebec Deposit Authority, which owns about 8% of Laurentian, believing it’s a sensible move given the competitive landscape in banking.

This arrangement represents another growth milestone for Fairstone, an alternative lender that merged with Home Trust last year. This merger left them with around 2 million customers and 255 branches. Home Trust had previously expanded after its acquisition by Smith Financial Corporation in a deal worth about $1.7 billion in 2023.

On the flip side, National Bank will gain a wider customer base by managing approximately $10.9 billion in Laurentian’s consumer loans and deposits, along with about $1.4 billion in small business loans and deposits.

Overall, Jefferies analyst John Aiken noted that, although the outcome was anticipated, it came as a surprising exit for Laurentian Bank and one that could benefit current shareholders. He added that National Bank will also gain from this transaction, explaining that not only does it enhance their scale, but they also avoid legacy issues tied to Laurentian’s branch system. “Acquiring assets, deposits, and mutual funds at book value is just a bonus,” he concluded.