We are still a bit surprised no deal was made earlier for the company. Simply, there are not many bank assets that come up for sale. The 'no deal' is a bit concerning, as it clearly is not a very big bite for our large banks. It is possible they didn't like the portfolio of assets, which raises the possibility that LB will need to take future write offs. Growth has flatlined, and now Canada is more or less in a technical recession. Even at lower prices it might be a hard sell now to a buyer. New management has their work cut out for them. At 5X earnings, a bank at 10X earnings (RY's multiple) could easily make a capital allocation case for buying LB, considering it is half its valuation. But what should have been an 'easy' takeover did not happen, and this worries us. National Bank moved to a 'sell' this month, citing the risk of credit downgrades and deterioration. We think any buyer, if one is indeed in the wings, will simply wait to see how things shake out. Our guess is the stock just likely 'drifts' for a while (six months or so) until its new direction is more firmly established.
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