Quebec referendum risk drags shares, Laurentian Bank says
The risk of separatism is rattling some investors, Rejean Robitaille says
The head of Laurentian Bank says the risk of another referendum in Quebec is rattling some of its shareholders, but Rejean Robitaille says the bank will continue to grow regardless of which party wins next week's provincial election.
"What the market doesn't like is the uncertainty, and during this political campaign, there's a lot of uncertainty," he said Wednesday following the bank's annual meeting.
An Ipsos Reid poll released Wednesday suggests the Liberals are heading to a majority as the campaign comes to a close. The survey found the two parties are tied at 31 per cent among francophones. Overall, the Liberals lead with 37 per cent, the PQ has 28 per cent, the coalition party has 19 per cent and solidaire is at 13 per cent.
Robitaille said the possibility of the PQ winning a majority has created some concerns, especially among investors based in the rest of Canada and in the United States who watch news reports from afar.
But the chief executive said Quebec's third-largest financial institution has grown no matter which party has been in power before and will do so again.
It has generated record results each of the last seven years, doubling its assets to $34 billion, by diversifying its operations and providing the customer service customers want, he said.
"We are in a niche where definitely we believe that independently of which government is in place we are able to win business," added Robitaille.
The bank has also been a launch pad for Quebec politicians from the two leading parties. Carlos Leitao was chief economist before recently resigning to run as the Liberal's leading financial candidate, while former economist Simon Prevost is running for the PQ.
"I think Laurentian Bank is probably a good breeding ground for that," he joked.
Barclays Capital analyst John Aiken says Quebec provincial elections have historically had a notable impact on the share performance of National Bank, and Laurentian, relative to its peers among Canada's top five banks. During the past 12 elections, National performed the worst ahead of the elections but bounced back after the vote.
On the Toronto Stock Exchange, Laurentian's shares closed down two cents at $47.15 in Wednesday trading. However, since the provincial election was called, the shares are up 3.4 per cent.
He said Laurentian appears to be bucking the trend this time, mainly due to a recovery after reporting disappointing first quarter results on March 5.
Aiken said a Liberal majority is the best scenario for National, while a PQ majority is best for Laurentian's shares. The past two minority governments have been neutral for National but "distinctly negative" for Laurentian's valuation.
"That said, we believe the upcoming Quebec election is more headline risk than anything, and that any valuation overhang... should be temporary, and could be attractive to longer-term investors," he wrote.
Helped by the acquisitions of MRS Companies and AGF Trust, about half of the Laurentian's profits and 40 per cent of its loans come from outside Quebec.
Robitaille sees that continuing to grow as Laurentian further diversifies its geographic reach and types of service to reduce risk.
Quebec accounts for about 25 per cent of the Canadian population, and that is ultimately the profits that should be generated from the province, he said, adding that the growth won't come from adding branches across Canada.
The key areas of focus are its B2B Bank subsidiary and commercial lending, with should each contribute 40 per cent of the bank's profits. Retail banking almost exclusively in Quebec will generate the remaining 20 per cent.
Laurentian is in a year of transition in 2014 as it completes the integration of its recent acquisitions this summer and seizes the opportunities from almost doubling the number of financial advisers affiliated with the bank to 27,000.
After doubling commercial loans in the past five years, the bank hopes to double it again in the same period to $10 billion.
Robitaille said he doesn't foresee doubling the bank's overall assets again, but continues to look for acquisition opportunities that will improve its portfolio.