DBRS is downgrading all the long-term and short-term ratings for Laurentian Bank of Canada.

The rating agency says that its downgrades reflect: the risks associated with LBC’s repositioning of the retail banking strategy; an anticipated reduction in expected return on equity for 2005 and 2006, which will be due to the delay in repositioning the bank; weaker than anticipated internal capital generation from ongoing operations; and, uncertainty surrounding the outcome of the binding arbitration process between union staff and LBC. The outcome, expected by November 2004, could significantly impact staffing flexibility and efficiency opportunities, it notes.

Despite these negative factors, the overall risk profile of LBC continues to be conservative relative to the larger banks in Canada, in that a higher proportion of loans are retail in nature. Its regional banking strategy is consistent with this risk profile, it says. To fund this retail banking strategy, LBC has been building capital through the sale of non-strategic assets. Capital ratios are at the high end of its peer group range, Tier 1 capital ratio was 10.3% at the end of Q3 2004. The large retail deposit base, representing 79% of total deposits, provides stability in funding and also contributes to LBC’s reasonable financial risk profile, DBSR says.

Along with the downgrades, DBRS is restoring the trends to stable. The ratings have been on a negative trend since Dec. 15, 2003.