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

DBRS has today confirmed the ratings of Laurentian Bank of Canada (Laurentian or the Bank), including the Deposits & Senior Debt at BBB (high) and the Short-Term Instruments at R-1 (low); all the 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. Although under cyclical pressure, Laurentian’s underlying asset-quality profile has improved; the loan mix has shifted to a greater proportion of secured lending over the past two years.

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, was actually beneficial through the downturn as the economic performance of the province was resilient.

Under DBRS’s global rating methodology for banks, Laurentian’s long-term deposit and 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.

Laurentian reported a profit of $90.4 million for the first nine months of 2010, an increase of 21% from the comparative period in 2009; the return on equity (ROE), while still modest, strengthened to 11.4% from 10.0%. The improvement was largely driven by higher net interest income and most areas of non-interest income, offset by lower securitization revenues, higher non-interest expenses and higher loan loss provisions. Loan loss provisions for the nine-month period ending September 30, 2010, increased by 30% compared with the same period in 2009, although they have remained at a stable level on a quarterly basis for the past four quarters, with the exception of Q3 2010, which experienced a large charge related to a single credit. DBRS views this charge as somewhat unique and not indicative of further deterioration in the overall loan book.

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

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations, Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessment and Rating Bank Preferred Shares and Equivalent Hybrids, which can be found on the DBRS website under Methodologies.