Laurentian Bank’s CEO acknowledged having underestimated the market reaction to irregularities surrounding certain mortgages sold to a third-party buyer, although noting that he believes the issue has been “over mediatized.”
“We certainly underestimated the sensitivity of the market to all that (touches) the mortgage sector,” Francois Desjardins told The Canadian Press after the bank’s annual meeting earlier this week.
The bank didn’t address the issue in its presentations, but that didn’t stop a shareholder from criticizing its leaders and demanding accountability for the company’s share performance
Canada’s seventh-largest bank is trading around $48 on the Toronto Stock Exchange, far from its level of about $60 in early December, before the disclosure of irregularities.
Laurentian is expecting to purchase up to $392 million in loans deemed problematic by the end of the second quarter, following the comprehensive review of mortgage loans totalling $1.1 billion.
Read more: Laurentian Bank’s review of problematic mortgages to finish in Q2
Desjardins told reporters that the bank’s situation is very different from what happened with Home Capital last year.
The discovery of irregularities at the Ontario alternative lender resulted in charges being laid by the Ontario Securities Commission and pushed the company into a crisis that threatened its survival.
“The amount mentioned is $400 million (of potentially redeemed loans) on (managed assets) of $47 billion,” Desjardins said. “That’s less than one per cent of all the work we do.”
The CEO insisted that the quality of the loans in question was not bad, but that the product type simply wasn’t what was wanted by the third-party buyer, whose identity was not disclosed.
Laurentian shareholder Richard Venor expressed regret at what he called a lack of transparency by management in recent months, believing that it had not been able to “deliver the goods” to the shareholders.
“If loans have gone bad, heads have to roll,” Venor told fellow shareholders. “It’s the way we work in business. Managers should be identified and we must get rid of them.”
Venor later told reporters that the current share price reflected the market’s view of the bank’s management.
Desjardins acknowledged that the issue could have an impact on the share price, adding that there were several other factors to consider, including the current transformation plan.
Desjardins is planning to double the bank’s size as part of a major digital shift, which has resulted in a decrease in the size of the branch network in Quebec. He intends to eliminate 50 branches and reduce their number to about 100.
“We are building the bank of tomorrow,” the CEO assured. “It’s over seven years, it’s not a one-quarter correction.”