The credit rating agency DBRS Morningstar says it is concerned about the situation at Laurentian Bank.
“The rapid succession and scale of events occurring in recent months could have negative consequences on the bank’s credit rating,” reads a report published by DBRS.
The bank announced Monday the departure of CEO Rania Llewellyn and Chairman of the Board Michael Mueller. Éric Provost now heads the bank, while Michael Boychuk is now chairman of the board.
Three other management departures have taken place in recent weeks. 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 last week after the bank announced in mid-September that it had concluded a review of its strategic options by ruling out a potential sale.
DBRS intends to conduct a “comprehensive review” of Laurentian this fall to further assess the impact of recent events on the bank’s strength and credit ratings. DBRS specifies that the focus will be on Laurentian’s ability to maintain and grow its customer base as well as improve its financial results under a new management team.
DBRS points out that in recent years and until 2022, Laurentian’s personal banking services have faced certain problems (customer attrition, reduction in loans, stagnation of deposits).
“Despite a relatively diversified loan portfolio, the bank recorded the lowest levels of profitability among mid-sized Canadian banks rated by DBRS. This is due to relatively low interest margins and low operational efficiency,” the report said.
Shokhrukh Temurov of DBRS explains to La Presse that the rating agency will test the bank’s ability to generate high and stable profits through the strength of its competitive position and market power, with the strength of its team of managers, its corporate governance, and other relevant factors.
“When it comes to management, we look more favorably on a bank whose management team is strong and stable and whose strategy is effective and coherent,” he says.
Laurentian stock fell to a 52-week low during Tuesday’s session. The stock fell 3% to close at $27.59 in Toronto, pushing the dividend yield to 6.8%.
On this subject, analyst Marcel McLean, from TD, wants to reassure his clients. “I do not think there is a risk of a reduction in the dividend,” he underlines in a note sent on Tuesday.
“I recognize that there is increased uncertainty about the future trajectory of the bank, given the changes at management and board level, but I believe the risk is already reflected in the current price of action,” he adds.
Laurentian had already reduced its dividend by 40% in May 2020, shortly before the abrupt departure of former CEO François Desjardins.
Laurentian’s dividend yield is now roughly in line with Scotia’s, which stands at 7.3%, and CIBC’s, which is now at 6.9%.
“Capital levels at Laurentian appear strong, with a CET1 ratio of 9.8% (minimum requirement is 7%). I don’t think there are any issues within the bank that would result in material capital or book value charges,” maintains Marcel McLean.
