Laurentian shares slide after top Buy contenders refuse to make an offer

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The share price of Canada’s Laurentian Bank slumped early Friday after a falling group of buy-back contenders prompted analysts to lower their expectations for a sell-off.

Laurentian’s share price fell as much as 9 percent in early trading on Friday after the Globe and Mail reported that the Bank of Nova Scotia and Toronto-Dominion Bank have decided not to submit a bid as the deadline to bid nears the end of the month, according to sources familiar with the matter.

TD and Scotiabank were considered top contenders to rally Laurentian, and their decisions to bow out cut the probability of a sale by 50 percent, according to Barclays analyst John Aiken.

“We believe that this reduces the likelihood of a sale of [Laurentian Bank]”we don’t see the remaining Big 6 banks as compelling or motivated, in comparison,” Aiken said in a note to clients.

TD is sitting on the largest pile of excess capital among its peers after canceling its $ 13.5 billion deal for based First Horizon Corp Tenesi.me its intentions for expanding its operations in the U.S., the lender could be interested in Laurentian Bank’s U.S. commercial financing unit, Northpoint Commercial Finance-which has been the lender’s fastest-growing division.

Scotiabank-which has yet to unveil its strategic “refresh” led by newly formed Chief Executive Scott Thomson-has tied Quebec and British Columbia as key markets to grow its businesses, particularly in commercial banking, which is a focus of Laurentian.

“We believed that TD (with its surplus capital) and Scotia (the desire to expand into the Quebec market) were two of the most compelling and motivated bidders for LB,” aiken said. He added that “if a buyer of Laurentian eventually comes out” with the listing shrinking, “the chances of a bidding war for [Laurentian Bank] and running an offer above the value of the book is likely to diminish.”

Laurentian Bank’s share price has fallen over the past year as weaker-than-expected earnings and the failure of California’s Silicon Valley Bank and other U.S. regional lenders weighed on its valuation. Shares have hovered near $ 30 per share, less than 60 percent of book value.

Its shares rose to more than $ 40 in mid-July after the bank confirmed it was conducting a strategic review.

Although Laurentian’s shares rose about 30 percent, it still remained below the bank’s book value per share of about $ 59, “suggesting that even the market lacks confidence that a premium offer will emerge,” Aiken said.

The bank is in the middle of its three-year strategic turnaround plan, which focuses on certain specializations including commercial equipment financing and partnering with external companies to reinvigorate its digital banking services.

Laurentian engaged JP Morgan Chase & amp; Co. at the end of spring last year to advise the bank on possible growth opportunities. Jp Morgan was tasked with exploring potential acquisitions that could strengthen Laurentian Bank’s retail, commercial and technology platforms, as well as potential mergers with mid-sized financial services rivals.

While a buyer may still emerge, the loss of the top two contenders raises questions about what Laurentian’s next move should be if it doesn’t receive any offers or if the review doesn’t lead to a sale.

“We wonder if efforts to explore potential growth options mean that, to a certain degree, management may not believe that the current strategy will be able to deliver the results that could boost Laurentian’s valuation,” aiken said.