Dominion Bond Rating Service Ltd. is lowering all long-term debt ratings for Laurentian Bank of Canada, and maintaining the negative trends.

The long-term trends have been negative since June 19, 2002. The short-term rating remains unchanged, but the trend is now changed to negative from stable.

DBRS says that the long-term downgrades were the result of: the risk associated with Laurentian Bank’s repositioning to grow its Quebec presence in retail banking; uncertainty surrounding the outcome of the binding arbitration process between union staff and Laurentian Bank; and the banks ongoing sub-optimal profit performance.

The rating agency says that even if LBC meets all of its targets in repositioning the bank, the projected returns are sub-optimal on an absolute and relative basis, with forecasted return on equity to grow to 10% in the third year.

As for the repositioning, it says that there is limited room for missteps given the execution target period of three years. “As part of LBC’s plan, the bank must win new customers at its new branches and increase the sales culture of its employees to be more sales driven therefore improving cross-selling to existing clients. The risks are high given LBC’s two strongest competitors are also focused on these areas,” it says.

Despite these negative factors, DBRS has only put the short-term rating on negative trend as a result of its reasonable financial risk profile. Partly through the use of insurance and securitization and the gain from the sale of bank branches, capital ratios have been strengthened to levels that are at the high end of its peer range, it notes.