Laurentian Bank stock fell Tuesday to its lowest level since 2020 after the publication of a research report discussing what the risk of a lowering of the financial institution’s credit rating could imply.
“This could put additional pressure on financing costs,” says analyst Gabriel Dechaine of National Bank Financial.
This expert points out that Laurentian Bank’s financing costs are increasing this fall in anticipation of potential decisions that credit rating agencies could make.
And in the event of a downgrade, Gabriel Dechaine estimates that the bank’s financing costs could further increase.
Operational and leadership issues aggravate credit downgrade risks, he raises.
Gabriel Dechaine revises his forecast to reflect more moderate expectations assuming additional IT spending will be necessary to resolve recent issues. These “fixes” could include both improved IT governance and efforts to maintain customer relationships.
He judges that Laurentian stock will henceforth underperform in the financial sector whereas he previously judged that the stock would behave like the sector as a whole.
Last Thursday, the credit rating agency Standard
The agency cited Laurentian’s recent operational woes and the departure of senior executives as potential risks to the implementation of the long-term strategy. S
“The negative outlook reflects the possibility that operational errors and turnover in management could harm the strength of the franchise,” writes S
“It also illustrates the IT difficulties which seem to indicate past investments in technology at Laurentian that are less significant than those of the big banks, and somewhat higher risks of reputational issues for the franchise. »
Earlier this month, credit rating agency DBRS expressed concern about the situation at the bank and indicated that it intended to conduct a “full review” of Laurentian this fall to further assess the impact recent events on the strength of the bank and its credit ratings.
DBRS specified that the emphasis would be placed on Laurentian’s ability to maintain and grow its clientele as well as improve its financial results under a new management team.
“The rapid succession and scale of events occurring in recent months could have negative consequences on the bank’s credit rating,” read a note published by DBRS.
Laurentian announced on October 2 the departure of CEO Rania Llewellyn and Chairman of the Board of Directors Michael Mueller. Éric Provost now heads the bank while the chairmanship of the board now goes to Michael Boychuk.
Three other departures have taken place in management in recent months. The head of technology, the head of operations and the head of personal services have in turn left the bank.
The changes come amid a central system outage this fall after the bank announced in mid-September that it had concluded a review of its strategic options by ruling out a potential sale.
Laurentian shares fell 2.5% Tuesday to close at $26.81 on the Toronto Stock Exchange.
