Dominion Bond Rating Service has confirmed the ratings of Laurentian Bank of Canada. All trends are stable, DBRS says.

The rating agency says that the confirmations “reflect the early progress made on repositioning its retail bank, the resolution of the collective agreement with its unionized workforce, and the bank’s strong credit risk and financial risk profiles, although internal capital generation from ongoing operations remains weak”.

During the past six months LBC has raised its profitability levels (due to modest revenue growth) from a very weak second half in 2004, DBRS says. Despite the increase, DBRS feels the profit levels are sub-optimal on an absolute basis, but the combination of maintaining strong credit risk and financial risk profiles help to mitigate the negative earnings implications.

“Meaningful expansion in return on equity, as a result of repositioning the retail bank (including the “Entrepreneurship Program” and retail branch expansion in Quebec), has yet to be realized,” DBRS notes.

Over the past six months, the bank has publicly stated that it would consider some type of partnership with one of the five large Canadian banks in order to become a stronger number three player in retail products (by market share) in Quebec, DBRS says.

So far, an alliance has not materialized. And, DBRS says it believes the key issue impacting a potential partnership is LBC’s unionized workforce. “In March 2005, the arbitrator rendered a final decision concerning the collective agreement between the union and LBC, which management feels should positively influence staffing flexibility and efficiency opportunities. DBRS anticipates the realization of the benefits from the agreement in the near term will be challenging given the embedded culture of its 2,000 unionized employees,” it says.

“Longer-term, LBC is challenged to strengthen its franchise relative to two very strong competitors, which have significantly stronger retail franchise, larger market share, and higher levels of capital,” it adds.