Here’s why Moody’s just downgraded six Canadian banks

‘Downside risks’ to economic growth have enhanced banks’ vulnerability to household debt

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.

Here’s why Moody’s just downgraded six Canadian banks

  1. Gasp! After everything Dear Leader has been telling us?!

  2. who really cares what they say anymore, they are defunct

  3. “Assigning top ratings to mortgage-related investments were not uncommon by Moody’s during the housing boom. Of the $4.7 trillion in securities backed by consumer home loans that
    the firm rated between 2000 and 2007, more than three-quarters of those bonds, based on dollar amount, received a ‘AAA’ rating, according to a preliminary staff report published by the commission.” http://money.cnn.com/2010/06/02/news/companies/moodys_hearing/index.htm

    I don’t recall any wide scale sacking of the people responsible for giving Triple A ratings to large blocs of toxic mortgages at the center of the Credit Default Swaps that caused the 2008 meltdown, and I don’t recall any executive apologies or pledge to change, so how are we to take Moody’s pronouncements now?

    Does this downgrade mean the opposite, that these banks are well run and sound? Does it mean that the banks’ creditworthiness is lower than the worst of the credit default swaps that Moody’s gave AAA ratings to? Or does it mean that the client banks didn’t come across with enough $ for the rating “service?”

    • Fourth option: Does it mean Moody’s like S&Ps, don’t have a frickin’ clue when it comes to financial institutions and are just making crap up to match their investors state of mind?

      • I’d say so….gawd knows they never saw the brick wall we hit.

      • I think they have a clue. They actively compete for market share with other so-called ratings agencies which operate on a “user pay” model and see their only duty as delivering value to their own investors. In other words the foxes are on the payroll of the other foxes to guard a henhouse in which the chickens were eaten long ago.

  4. The entire monetary system needs to be scrutinized. Wallstreet is corrupt to the core, the Federal Reserve is an embarrassment to reason and after causing the 2008 recession, no one went to jail. They protect themselves and are protected by the media and politicians. It’s time to blow this MF up and expose all the corruption and duplicity.

    We are being played and have been for a long time.

  5. Hey, wow, comment system where I don’t have to leave my personally identifiable info and thus can state my true opinion. Congrats to Macleans for allowing freedom of expression and free speech and allowing people the option of not having to self-censor their opinions.

    Now as for my opinion:

    What we need are philosophers and poets in positions of influence and design, so as to ensure our society is one that places ethical, sustainable prosperity of the majority above the profits of trans-national elite minority. When will people learn you can’t have the latter without the former? Where have they all gone our poets and philosophers? Flipping burgers are they? Dumpster-diving maybe?

  6. This article just echoes what Moody’s says, in financial lingo crap. I mean who talks like this “…confidence-sensitive wholesale funding, …Moody’s has removed systemic support from the ratings of all Canadian banks’ subordinated debt instruments that had benefited from support “uplift”:”

    Sadly the reality is that banks irresponsible capital investment decisions would still be bailed out on the backs of taxpayers – aka systemic support. So who cares about the ratings!

  7. Canadian’s Banks are nothing more than an embellish oligarchy where transparency is trump by enslavement of its mass threw RRSP – Private Tax Collection’s scheme, auctions of Mothers, sisters , daughters and Canadian resources to the highest foreign bits as long as the elites and their agents gets their cuts . The feds’ bureaucrats and provincial’s agents are in total control of the banking system.

    The American’s banking fiasco (Tip) is peanuts compare to the Canadian Banking System (IceBerg). It is amazing the world Darwinist ‘s elites have not notice Canadian’s private Banking flaws.

    Even, One OF European’s Bank elites fools (Bank of England) even appointing utopian Scholar utopian Darwinist SS’ Mark Carney , The monkey have no clothes and yet the World Darwinist Elites are clueless , this is freedump at its best maximizing utopian profiteering Darwinist dividend war monger lovers in the name of freedump and the pursue of happiness in a box…

    May God bless this New Economic System , its New World orders and their SS Agents

    In Only God I trust,

    Ex-Gatekeeper of the lost free world

  8. Moody’s is right to do this. Canadians are up to there eye balls in
    Housing debt due to low rates and an Asian influx. Will the government
    Step in and help local buyers like in Australia. Or will the Bank of Canada
    raise rates to some kind of Normal level regardless of the US Fed. Time to
    Cut the cord Canada

  9. Governments and corporations use ‘Moody’ reports, much like the C.D.Howe Institute or the Fraser Institute reports, like flim flam men to distract the populace who desperately want something to ‘believe in’ something to ‘trust’ so that they don’t notice the “free market economy” rules and regulations are skewed to tranfer public money into private money.

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