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 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.
By Chris Sorensen - Tuesday, October 16, 2012 at 10:39 AM - 0 Comments
Banks are acquiring wealth management businesses, but customers aren’t buying in
For Canadians who entrusted their retirement savings to professionals over the past few years, the phrase “wealth management” probably seems like a contradiction in terms. The combination of volatile stock markets and ultra-low interest rates has made it difficult for investors to come out ahead. As a result, many have simply opted to sit on the sidelines.
And that has been a problem for the wealth-management industry, which employs everyone from financial advisers to stockbrokers. As a result, several Canadian financial services firms have looked to sell their underperforming wealth-management businesses—mostly to the big banks, which are keen to diversify and are attracted to the steady stream of fees that can be charged to wealth-management clients.
In August, the Canadian Imperial Bank of Commerce bought the wealth-management arm of MFS McLean Budden. National Bank bought the wealth-management business of Wellington Financial last year. The most recent deal, last week, involved Montreal’s Fiera Capital buying Canadian Wealth Management Group from Société Générale Private Banking for an undisclosed sum.
However, all that shopping hasn’t addressed the issue of too many advisers chasing too few clients. That’s among the reasons Canaccord Financial, one the country’s largest independent full-service firms, recently revealed plans to close 16 of its 32 wealth-management branches. Canaccord, which posted a loss of $20 million in the first quarter, said the offices on the chopping block only contributed to 16 per cent of the $13.1-billion of assets under management. “The consolidation of branches will allow Canaccord to better service its private clients by concentrating its support resources and capital investments in client service activities in its key markets,” the firm said in a statement.
However, Canaccord cautioned that the remaining branches “will operate on a near break-even basis in current market conditions,” although they all have the potential to be “consistently profitable” in the future. Now it’s just a matter of waiting for deep-pocketed customers to return.
By Chris Sorensen - Thursday, March 4, 2010 at 3:00 PM - 9 Comments
In the rush to recovery, a new threat looms: inflation
When Thomas Hoenig took over as president of the Federal Reserve Bank of Kansas City nearly two decades ago, his 85-year-old neighbour gave him a 500,000-mark German banknote to remind him of Germany’s experience with runaway inflation following the First World War. “He told me that in 1921, the note would have bought a house,” Hoenig said during a recent speech to a U.S. budget commission. “In 1923, it would not even buy a loaf of bread. That note is framed and hanging in my office.”
Hoenig openly admits that invoking historical reminders of hyperinflation might seem overly alarmist in an era when inflation—a rise in the cost of living caused by heightened demand for products or the rising cost of producing them—has ceased to be a major concern for most North Americans. Central bankers have made fighting excess inflation, usually anything more than two per cent to three per cent, among their chief priorities in recent decades (some inflation is generally viewed as a good thing because it signals economic growth). But as the economy comes back to life after an extraordinary period that saw governments—particularly in the United States—resort to unprecedented fiscal and monetary measures to keep the world’s economies from imploding, suddenly there’s renewed concern about inflationary pressures. (Already, Canada saw a surprise jump in its inflation rate in January.) With all that extra money sloshing around in the system—inflation is sometimes thought to be caused by too many dollars chasing too few products—some are worried that the cure prescribed for the downturn could quickly become the recovery’s disease.
While unwanted inflation can be reined in by hiking interest rates, central bankers seem intent on keeping interest rates low to help speed economic recovery. People like Hoenig, meanwhile, say they are worried that a massive buildup of U.S. government debt could also lead to calls for the central bank to print more money to help pay it down sooner, which could also have long-term inflationary effects.
By Duncan Hood - Monday, February 23, 2009 at 6:50 PM - 1,394 Comments
New evidence shows that Canadian prices could go down, and stay down, for a decade
There are still people out there who don’t believe Canada is about to be hit by a devastating housing crisis, but Riaz Kassam isn’t one of them. For him, the crisis has already arrived.
Last July, he made an $80,000 pre-sale payment on a $1.5-million penthouse condominium in Vancouver’s tony H&H Yaletown building, just a few blocks away from where he lives. Kassam, a 42-year-old computer analyst, who’s married with no kids, expected to move in by the end of 2008. But when he put his current apartment on the market, he didn’t get a single offer. He thought maybe he had priced it a little high, so he knocked a bit off. Still, no offers. He lowered it again, and again, until eventually he was offering his apartment for a full $120,000 less than his initial asking price. That’s when he realized he was in trouble. “We reached the point where we couldn’t drop the price any more,” he says, “or we wouldn’t have enough for the down payment on the new property.”