BNS Preferreds Downgraded by S&P to P-2(high); Outlook Now Stable

Standard & Poor’s has announced:

  • •We believe that the Canadian banking sector is encountering incremental pressure from headwinds facing the Canadian economy, which is heightening economic risk in the banking system.
  • •We also believe industry risk for the Canadian banking sector is increasing. We expect that intensifying competition for loans and deposits will lead to pressure on profitability growth, especially in banks’ retail businesses.
  • •We are lowering our long- and short-term issuer credit ratings on Bank of Nova Scotia to ‘A+/A-1’ from ‘AA-/A-1+’, following our revision of the stand-alone credit profile on the bank to ‘a’ from ‘a+’, and assigning a stable outlook.
  • •The stable outlook reflects our expectation that Bank of Nova Scotia’s credit fundamentals will remain consistent with current ratings over the next 24 months.

Consequently, we lowered our anchor SACP, which is the starting point for our ratings on financial institutions operating primarily in Canada, to ‘a-‘ from ‘a’ But the anchor for BNS was lowered to ‘bbb+’ from ‘a-‘, reflecting its operating footprint in countries that are weaker than Canada, in our view. This is reflected in our revision of Banking Industry Country Risk Assessment (BICRA) for Canada to group ‘2’ from ‘1’ and revised our industry risk score, a component of the BICRA, to ‘2’ from ‘1’ (see “Various Rating Actions Taken On Canadian Financial Institutions Due To Rising Industry and Economic Risks,” published Dec. 13, 2012, on RatingsDirect on the Global Credit Portal).

The resulting SACP of ‘a’ is adjusted upward one notch in arriving at the ‘A+’ issuer credit rating to reflect our expectation for extraordinary government support in a crisis.

Hands up whoever feels good about sovereign support of BNS expansion into countries with weaker economies!

The prior negative outlook on BNS was reported on PrefBlog.

BNS has the following preferred shares outstanding: BNS.PR.J (Series 12); BNS.PR.K (Series 13); BNS.PR.L (Series 14); BNS.PR.M (Series 15); BNS.PR.N (Series 16); BNS.PR.O (Series 17); BNS.PR.P (Series 18); BNS.PR.Q (Series 20); BNS.PR.R (Series 22); BNS.PR.T (Series 26); BNS.PR.X (Series 28); BNS.PR.Y (Series 30) and BNS.PR.Z (Series 32). All have been downgraded from P-1(low) to P-2(high).

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