MONTREAL -- Laurentian Bank's CEO acknowledges having underestimated the market reaction to irregularities surrounding certain mortgages sold to a third-party buyer even though 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 reporters Tuesday after the bank's annual meeting.
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 expects 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.
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," said Desjardins. "That's less than one per cent of all the work we do."
He 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, an accountant by profession, regretted 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," he 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 wants 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," he said, urging patience. "It's over seven years, it's not a one-quarter correction."
