After conducting a “comprehensive review” of the activities of the Laurentian Bank this fall to assess the impact of recent events within the organization, the credit rating agency DBRS Morningstar downgrades the Quebec financial institution.
Laurentian’s credit rating changes from A (low) to BBB (high) with “negative” outlook.
The move could impact the bank’s borrowing costs. A rating of BBB means that a company’s ability to meet its financial obligations is acceptable, but it may be vulnerable to future events.
Investors rely on company credit ratings to get an idea of how debt securities should be valued.
DBRS said in October that it was undertaking a review to fully assess the impact of, among other things, the departures of CEO Rania Llewellyn, Chairman of the Board Michael Mueller, and the IT outage that affected the organization’s banking services in September.
The credit rating agency stresses that the bank’s ability to improve its profits and growth prospects in the short to medium term will likely be affected by the unexpected and sudden departure of Rania Llewellyn and the rapid succession of departures of others leaders while uncertainty surrounding the strategic plan persists.
DBRS specifies that the bank faces these changes and operational problems in an uncertain economic environment, with increasingly strong headwinds.
“As a result, the challenging operating environment will likely make the execution of a new strategic plan more complicated,” reads the DBRS report released over the weekend.
Called to react to DBRS’s decision, Laurentian management responded that the bank had “solid” levels of capital and liquidity.
“The bank recently introduced three strategic priorities: becoming more customer-centric, improving efficiency and investing in core technology systems to ensure Laurentian Bank’s sustained success,” he adds.
The management team will review its strategic plan over the coming months. This revised plan will be presented in the spring.
DBRS could upgrade the outlook to “negative” from “stable” if the new management team demonstrates sustained improvement in franchise position and financial performance while maintaining a similar risk profile.
Conversely, DBRS said, other operational errors or failure to execute strategic initiatives leading to further deterioration in franchise strength and profits would result in a downgrade of the rating.
Laurentienne has been directed by Éric Provost since the beginning of October. The management changes and breakdown came after the bank announced in mid-September that it had concluded a review of its strategic options, ruling out a potential sale.
In an effort to reduce costs, Laurentian announced earlier this month the layoff of 2% of its workforce, or 55 employees.
Standard credit rating agency