Fairstone’s acquisition of Laurentian Bank, first announced in December 2025, is expected to strengthen the combined lender’s credit profile, though it will also change its lending mix and weigh on profitability metrics, according to a new report from Morningstar DBRS.
The rating agency placed both institutions under review with positive implications following the $1.9-billion transaction, reflecting its view that the acquisition “should improve the Group’s consolidated credit profile and will likely result in a Positive trend or an upgrade.” The deal is expected to close by the end of 2026, after which Laurentian will operate as a wholly owned subsidiary and be assessed on a consolidated basis.
Morningstar DBRS expects the transaction to significantly expand Fairstone’s footprint, noting it “will materially increase Fairstone’s scale and accelerate growth while deepening its footprint in key markets,” with approximately $31 billion in loans added to the balance sheet. It added that Laurentian’s loan portfolios will complement Fairstone’s existing business, and that “the Group’s residential mortgage business could benefit from Laurentian’s distribution channels for advisor-sourced mortgages.”
Laurentian has also begun repositioning parts of its balance sheet ahead of the broader restructuring. In February, the bank completed the sale of its syndicated loan portfolio to National Bank.
At the same time, Morningstar DBRS said the combined entity will reflect a more diversified loan mix and revenue base, which it expects will improve earnings quality over the medium to long term. However, its analysis indicates that profitability metrics will weaken on a pro forma basis, stating that “the Group’s net interest margin (NIM) and return on average equity (ROAE) would be weaker” compared with Fairstone’s standalone performance, largely due to Laurentian’s lower profitability across most business lines.
Shift in risk profile and lending mix
Morningstar DBRS said the acquisition is expected to improve the group’s overall risk profile, citing Laurentian’s track record of lower credit losses and more stable asset quality. Its analysis indicates that “the Group’s asset quality metrics… improved on a consolidated basis” compared with Fairstone’s standalone results.
The agency also said Laurentian’s loan book will diversify the group’s exposure across geographies and products, which it expects will reduce sensitivity to localized economic conditions.
Despite the combination of prime and non-prime lending models, Morningstar DBRS said it does not expect a shift in overall strategy, adding that “we do not expect a material change in the Bank’s risk appetite or growth plan” following the acquisition.
Funding, capital and integration considerations
Morningstar DBRS said the transaction should strengthen the group’s funding profile by incorporating Laurentian’s deposit base and access to wholesale and capital markets funding, resulting in a more diversified funding structure.
The agency expects capital ratios to decline as a result of higher risk-weighted assets tied to the acquired commercial loan portfolio, but said the group should maintain its CET1 ratio above 12% in the medium term… “comfortably above the regulatory minimum.”
At the same time, Morningstar DBRS highlighted execution risk as a key consideration, warning that “significant integration issues would pose downside risks” to the credit profile if challenges arise during the integration process.
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Last modified: March 19, 2026