By Erica Alini - Monday, January 28, 2013 - 0 Comments
Credit rating agency Moody’s just downgraded by a notch the long-term ratings of BMO, ScotiaBank, Caisse centrale Desjardins, CIBC, National Bank and TD. RBC was spared.
The decision follows an identical move by Standard and Poor’s in December.
Here’s what Moody’s had to say about the rationale for the downgrade (the full press release is here):
High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable than in the past to downside risks the Canadian economy faces:
By 30 September 2012, Canadian household debt to personal disposable income reached a record 165%, up from 137% as of 30 June 2007, as debt grew faster than personal incomes. Growth in consumer debt has been driven by rising house prices, which have increased by approximately 20% since November 2007.
Downside risks to the Canadian economy have increased:
Moody’s central scenario for Canada’s gross domestic product (GDP) is for it to grow between 2% and 3% in 2013, but downside risks have increased. The open, commodity-oriented economy is exposed to external macro-economic risks, which if they arise would have significant ramifications for the Canadian economy, and consequently its banks.
NBC, BMO and BNS have sizeable exposure to volatile capital markets businesses:
Moody’s believes that trading and investment banking activities expose financial firms to the risk of outsized losses and risk management and controls challenges, and leave them highly dependent on the confidence of investors, customers and counterparties.
Canadian banks’ have noteworthy reliance on wholesale funding:
The Canadian bank’s noteworthy reliance on confidence-sensitive wholesale funding, which is obscured by limited public disclosure, increases their vulnerability to financial markets turmoil.
Moody’s has removed systemic support from the ratings of all Canadian banks’ subordinated debt instruments that had benefited from support “uplift”:
The rating agency believes the global trend towards imposing losses on junior creditors in the context of future bank resolutions reduces the predictability of such support being provided to the sub-debt holders of the large Canadian banks given the Canadian regulators’ broad legislated resolution powers. The removal of support for subordinated debt is consistent with recent actions we’ve taken elsewhere, including in many European countries, reflecting the increased likelihood that sub-debt holders would be subject to burden sharing in the event support was required.
By Chris Sorensen - Wednesday, November 7, 2012 at 8:00 AM - 0 Comments
Canada’s banks are under review for a potential ratings downgrade
Christine Lagarde, head of the International Monetary Fund, heaped another dollop of praise on Canada’s financial system during a gala dinner speech in Toronto last week. But while the country weathered the 2008 financial crisis better than most, Canadians should remember the old investing axiom: past performance is no guarantee of future results.
Less than 24 hours after Lagarde put down her dessert fork, debt rating agency Moody’s put six of Canada’s biggest banks under review for a possible ratings downgrade, citing high consumer debt levels and a frothy housing market. They are: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Toronto-Dominion Bank and Quebec’s Caisse Centrale Desjardins. The only one spared was Royal Bank of Canada, which Moody’s had previously downgraded in June.
Though not in itself a cause for alarm—Canada’s banks “will continue to rank among the highest-rated banks globally,” according to Moody’s—it’s yet another piece of evidence that cracks are forming in Canada’s post-2008 economic miracle. Household debt-to-income ratios now stand at 163 per cent, higher than in the United States before its housing crash and up from 147 per cent two years ago. Finance Minister Jim Flaherty has been forced, several times, to save giddy borrowers from themselves by dialling back maximum mortgage amortization periods. Continue…
By Tamsin McMahon - Friday, October 26, 2012 at 5:56 PM - 0 Comments
Adding to the growing chorus of analysts predicting a bursting of the Canadian housing bubble, ratings agency Moody’s Investor Service placed almost all of Canada’s major banks on review for a downgrade Friday, citing the country’s growing household debt levels.
Among the banks that Moody’s warned may be downgraded are: Bank of Montreal, Bank of Nova Scotia, CIBC, TD Bank and National Bank, along with Quebec’s Caisse Centrale Desjardins. The agency said its rating for Royal Bank of Canada, which was downgraded earlier this year, would be left unchanged.
Canadian household’s debt to disposable income ratio hit 163 per cent in the second quarter of the year, up from 137 per cent in the same period in 2007, the ratings agency noted. House prices are up 21 per cent over the same time period, it said, far outstripping the growth in incomes.
“Today’s review of the Canadian banks reflects our concerns about high consumer debt levels and elevated housing prices which leave Canadian banks more vulnerable to increased risks to the Canadian economy,” Moody’s vice-president David Beattie said in a statement.