Desjardins-Laurentian Financial Corporation: Confirms at Pfd-3 (low)n

Kent Wideman, CFA, Jarmo Saari, CFA / 416-593-5577 ext.2235, ext.2257 / e-mail: kwideman@dbrs.com

 

n – Denotes that the security is non-cumulative.

 

The "Pfd-3 (low) n" rating for the Class A Preferred Shares of Desjardins-Laurentian Financial Corporation ("DLFC") is being confirmed with a continuing Stable trend. This credit continues to benefit from conservative leverage, respectable credit quality, an important relationship with the Desjardins Group and market share strength in several key Quebec operating areas. To some degree, however, these strengths are neutralized by structural weaknesses. The latter include the continuing uncertainty regarding the future of the challenged Imperial Life operation and the fact that, without Imperial, DLFC lacks any sustainable meaningful franchise outside of Quebec.

 

In addition, we expect that the operating environment for the Quebec based DLFC subsidiaries will continue to grow more competitive as industry consolidation continues. Despite some reasonably good geographic niches, DLFC subsidiaries are not industry leaders on a country wide basis, and will be challenged to maintain their strengths over time. Until the future of Imperial becomes clear and DLFC proves that it can maintain its competitive abilities in a changing environment, the strengthening that has been achieved in the financial and credit risk areas are not enough to support a higher credit rating, particularly given the fact that the conservative leverage position (from the 1997 sale of Laurentian Bank) is likely to be short lived. While DLFC has not yet been successful in finding acquisitions that it considers appropriately priced, we expect that DLFC will ultimately reinvest its cash in such a fashion that the balance sheet will have higher, but still manageable, debt / equity ratios.