Laurentian Bank of Canada (LB-T) has announced a series of operational changes as a result of a strategic review, including a plan to slash its leased office space in Montreal, Toronto and Burlington by half.
The bank plans to stick with a longer-term hybrid work-from-home model for many of its employees, though Laurentian said this will not affect its branch footprint.
The move will result in a charge of $49 million against earnings to facilitate the space reduction, it says in the announcement made Tuesday morning.
Among its other moves are: 64 job cuts, mostly in Ontario; a suspension of phase two of upgrades to its core banking technology upgrades as the bank pivots to newer, more modern technology; and an increase in allowances and provisions for credit losses.
The changes are forecast to result in a $209-million reduction in pre-tax reported earnings during Q4.
“These difficult but necessary changes make us more confident than ever about our future,” said Rania Llewellyn, president and chief executive officer, in the announcement. “As an organization we have never been more unified, with a renewed management team and employees that are focused on our customers.
“We continue to maintain a strong capital and liquidity position that support our strategic investments in the bank’s future and reposition us for sustainable, long-term profitable growth.”
Laurentian Bank HQ in Montreal
Laurentian Bank is headquartered in Montreal and is currently the anchor tenant at 1360 Rene-Levesque Blvd. W. Laurentian consolidated most of its head office operations in the building in 2016, from several previous locations in Montreal.
In Toronto, Laurentian bases several of its offerings at 199 Bay St., while its LBC Capital Inc. arm is located at 5035 South Service Rd. in Burlington.
Full details about the bank’s future direction are to be unveiled during an investor day on Dec. 10.
During the bank’s Q3 2021 financials call, Llewellyn had telegraphed its return-to-office stance.
“One thing we’ve learned (during the pandemic) is that a one-size-fits-all strategy is not realistic, and that we must adapt to new ways of working,” Llewellyn said. “That’s why we will be pursuing an employee-centric strategy and adopting a hybrid model, where working from home is our first approach for all tasks that can be performed remotely.”
While the bank is the first in the sector to announce a major shift in its office use culture, Colliers president of real estate management services John Duda said this is not an indication of what others might do.
“It doesn’t worry me at all, at least not at this point in time,” Duda told RENX.
The bank is restructuring its entire business under a new CEO as it fights to keep and regain market share, not just looking at how it uses office space. That sets it apart from Canada’s biggest banks, which occupy huge swathes of real estate in downtown Toronto and the country’s other other banking centres.
“The fact Laurentian bank made this decision – and I look at how they are restructuring the entire bank – I’m not really surprised. It doesn’t shock me in any way,” said Duda, noting Colliers recently released insights from a national survey (The Great Experiment – Dawn of the Hybrid Era) of how employers are approaching return-to-office plans.
Study finds co-working could be in demand
Colliers canvassed occupiers from a variety of office sectors within its portfolio in major markets across Canada and found on average, they estimate a five per cent reduction in leased space. However, there was a flip side to that.
“What I found really interesting was the amount of co-working space that they want – it doesn’t mean they have it, they want it – has increased to seven per cent of their total space.
“That is a one per cent increase in the total amount of space needs,” he observed, noting the co-working sector currently comprises just one per cent of Canadian office space. “We’ll see what happens.”
Another factor in the outlook is that most of the major banks have inked long-term leases for the majority of their space. Breaking those leases would be very expensive.
“I look at CIBC and their lease is minimum 30 years, RBC’s lease at WaterPark Place 30 years, RBC at Simcoe Place 30 years. They could take a billion-dollar write -down, (but) I’m not sure they would favour that.
“There is no need for a knee-jerk reaction.”
While hybrid work will likely result in some shifts in the office market, he said corporations want to maintain employee productivity and continue to be able to build their cultures. The best place to do that is in offices.
“My gut says, when this is said and done, companies will just be more flexible.”
About Laurentian Bank
Founded in 1846, Laurentian Bank Financial Group currently has about 2,900 employees. The group has $45.2 billion in balance sheet assets and $29.2 billion in assets under administration.
The announcement had an immediate impact on the bank’s stock price, which was off $2.02 at $39.31 (about five per cent) in mid-day trading.