All my assets (GICs and Action GICs in particular) are at the Laurentian Bank. I have been with her for 50 years and have always been satisfied. With the recent haircut that the bank received and the opinion of financial experts for the latter’s action, I am worried. Do you have any advice?– Ruth Desjardins
If the decision last month by the credit rating agency DBRS Morningstar to lower the credit rating of Laurentian Bank to BBB (high) with negative outlook may first have an impact on the Quebec financial institution, it ‘is on its borrowing costs.
The BBB rating 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.
Guaranteed investment certificates (GICs) have interest rates that are generally guaranteed until maturity. “Then their value will not be affected by an increase in the cost of borrowing implied by the Laurentian Bank haircut,” says the professor.
In the case of a Laurentian Bank Equity GIC, the capital is guaranteed and the return, if applicable, is based on the performance of a benchmark index. “It is therefore not directly linked to the borrowing cost of the Laurentian Bank, which will increase with the discount,” specifies Jean-Pierre Gueyie.
Additionally, as is the case with all major Canadian banks, Laurentian Bank is a member of the Canada Deposit Insurance Corporation, which means that insurable deposits are protected up to $100,000 by deposit categories.
Regarding the opinion of financial analysts who follow the daily activities of the bank, they evaluate its stock. None of them suggest purchasing it as an investment currently. The 10 analysts who are officially interested in Laurentian are unanimous, but their opinion could however change later, depending on the ability of the new management team put in place during the fall to be able to reassure customers and investors.
In the wake of the IT outage that affected banking services in September and the departure of members of senior management, DBRS notes that other operational errors or failure to execute strategic initiatives leading to a further deterioration in strength of the franchise and its profitability can lead to a further lowering of the credit rating.
The bank’s management, for its part, emphasizes that the organization has “solid” levels of capital and liquidity. The bank’s ability to improve its profits and its short-term growth prospects will be closely monitored by observers. The strategic goals of the new management team will also be awaited with interest in 2024.