PrefBlog

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 that 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 affirming our ‘A+/A-1’ long- and short-term issuer credit ratings on BMO and BMO Financial Corp., as well as the ‘A+’ issue rating on BMO’s senior unsecured debt. We are lowering our issue rating on BMO’s and BMO Financial’s subsidiaries’ nondeferrable subordinated debt to ‘BBB+’ from ‘A-‘, and our rating on its preferred shares and hybrid securities to ‘BBB’ from ‘BBB+’.
• •The stable outlook reflects our expectation that the bank’s credit fundamentals will remain consistent with its current ratings over the next 24 months.

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The resulting SACP of ‘a-‘ is adjusted upward two notches in arriving at the ‘A+’ issuer credit rating, reflecting our expectation for potential extraordinary government support in a stress scenario.
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We could revise the outlook to negative or lower the ratings if the Marshall & Ilsley acquisition pressures BMO’s operating performance through weakening asset quality and additional credit marks, making net charge-offs consistently and materially exceed those of its domestic peers. We could also revise the outlook to negative or lower the rating if the projected Standard & Poor’s RAC ratio falls below 7% for several consecutive quarters. We could revise the outlook to positive or raise the rating if BMO garners a stronger retail and commercial market position in Canada, becoming more closely aligned with the top performers (TD Bank and Royal Bank of Canada, in our view), or if its RAC ratio is consistently above 10%. We see this as unlikely at this time.

BMO has the following series of preferreds outstanding: BMO.PR.H (Series 5); BMO.PR.J (Series 13); BMO.PR.K (Series 14); BMO.PR.L (Series 15); BMO.PR.M (Series 16); BMO.PR.N (Series 18); BMO.PR.O (Series 21); BMO.PR.P (Series 23) and BMO.PR.Q (Series 25). All have been downgraded to P-2 from P-2(high).

This entry was posted on Friday, December 14th, 2012 at 1:16 am and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.