Moody's to cut Canadian banks
Global rating agency Moody's has placed the longterm ratings of six Canadian banks (including the bank financial strength ratings, all senior debt, junior subordinated debt, and preferred stock ratings) on review for downgrade.
The short term Prime-1 ratings of the six banks are affirmed. Underpinning this review is Moody's view that these firms face challenges not fully captured in their current ratings. Moody's special comment "Concerns about high consumer debt levels and elevated housing prices, macro-economic risks, capital markets activities and bank-specific factors drive rating review of Canadian banks" provides additional commentary on the rationale behind today's rating actions.
The banks placed on review today include Bank of Montreal (BMO; Aa2 review for downgrade; B-/a1 review for downgrade). Bank of Nova Scotia (BNS; Aa1 review for downgrade; B /aa3 review for downgrade). Caisse Centrale Desjardins (CCD; Aa1 review for downgrade; C+/a2 review for downgrade). Canadian Imperial Bank of Commerce (CIBC; Aa2 review for downgrade; B-/a1 review for downgrade). National Bank of Canada (NBC; Aa2 review for downgrade; B-/a1 review for downgrade)."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, and for some banks a sizeable exposure to volatile capital markets businesses is of concern," said David Beattie, a Moody's Vice President. "Moody's recognizes the strong domestic franchises and solid earnings capacity of these large Canadian banks, and they will continue to rank among the highest-rated banks globally following this review." High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable to downside risks to the Canadian economy than in the past. By the second quarter of 2012, Canadian household debt to personal disposable income reached a record 163%, up from 137% in the second quarter of 2007, reflecting growth in debt that significantly outpaced personal incomes.