DBRS Confirms Laurentian Bank at BBB (high), R-1 (low)

DBRS has today confirmed all ratings of Laurentian Bank of Canada (Laurentian or the Bank), including its BBB (high) Deposits & Senior Debt and R-1 (low) Short-Term Instruments ratings. All trends remain Stable.

Laurentian’s overall business risk profile is conservative relative to the larger banks in Canada, with a focus on retail lending funded by retail deposits and an absence of significant involvement in higher risk trading or international strategies. Limitations on the ratings include a modest (albeit improved) level of internal capital generation and high cost structure. Regional concentration in Québec, while still a potential rating challenge, has been beneficial over the past year.

Under DBRS’s global rating methodology for banks, Laurentian’s long-term Deposits & Senior Debt rating has an intrinsic assessment of BBB (high) and a support assessment of SA3. The SA3 rating, which reflects the expectation of no timely external support, results in the final rating being equivalent to the intrinsic assessment.

On June 29, 2009, DBRS announced a change to its banking methodology related to bank preferred shares and Tier 1 innovative instruments. The change resulted in a downgrade of these instruments by two notches. Please see the DBRS press release from that date for further details.

Laurentian reported a 10.2% increase in adjusted earnings in the first nine months of 2009 compared with the same period in 2008, in part due to improved brokerage operations, loan fees and insurance products. While still affected by margin compression, the trend on margins bottomed out in the second quarter and improved in the third quarter due to the positive effects of loan re-pricing and a reduction in introductory promotional pricing on B2B Trust’s high-interest investment account.

While still comparatively low, profitability measured by ROE (excluding non-recurring items) has remained stable in the 10% range over the past two years, which has contributed to a more stable, but still comparatively modest, level of internal capital generation.

Laurentian’s asset quality metrics have held up well, reflecting a generally conservative portfolio and the comparative resilience of the Québec economy over the past two years.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Banks in Canada and Rating Bank Preferred Shares and Equivalent Hybrids, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.