PrefBlog

DBRS has announced that it:

has today changed the trend on the senior and subordinated debt ratings of six Canadian Banks and their subsidiaries plus Desjardins Group (Desjardins) and its issuing entities to Negative from Stable. Additionally, Negative trends have been placed on those related short-term ratings that might be affected by a long-term rating change under DBRS methodologies.

The rating action reflects DBRS’s view that anticipated changes in Canadian legislation and regulation mean that the potential for timely systemic support for these systemically important institutions is declining and is likely to eventually result in a change in DBRS’s support assessment to SA3 from SA2 for these institutions. Currently, the final ratings of such deposit-taking institutions benefit from an uplift of one notch above their intrinsic assessment because of the SA2 support assessment. At the same time, DBRS notes that additional protection for non-bail-inable debt and deposits may eventually be provided by bail-inable senior debt under the anticipated bail-in debt regime. DBRS will assess the impact of the “Taxpayer Protection and Bank Recapitalization Regime” rules as more details are made available by the authorities.

DBRS currently has an SA2 support assessment for Desjardins based on DBRS’s view of likely support from the Government of Canada for this institution, which is systemically important for Québec. As DBRS’s view of Canadian Government support for the large banks shifts, so too will the potential for support for other deposit-taking institutions. While DBRS continues to view support for Desjardins as likely from the Province of Québec, a decline in support from Canada for the large banks and Desjardins may result in a change in the rating. Consequently, Desjardins rating trends have also been changed to Negative.

In other provinces, credit unions as well as their systems and centrals remain important for those individual provinces. In many rural areas, credit unions are the only providers of banking services. In addition, various provinces have 100% deposit guarantee programs. These systems, however, are not included in current legislative proposals. Accordingly, DBRS has not changed its view of the likelihood that provinces will support their credit union systems and centrals. Moreover, DBRS’s existing SA2 support assessment for the various credit union centrals is based on provincial government support and there are no trend changes in this announcement related to the centrals.

The proposed bail-in regime for Canadian banks has been previously discussed on PrefBlog. A similar outlook-change was announced by S&P in August, 2014 following a July, 2014 announcement by Moody’s.

I think it’s a little odd that Laurentian Bank was not affected.

DBRS will be hosting a conference call at 11am EDT 2015-5-21 to discuss the changes.

Separately, thirty-eight European banking groups were placed under Review-Negative:

DBRS Inc. and DBRS Ratings Limited, collectively DBRS, have placed Under Review with Negative Implications the senior debt and deposit ratings of 38 banking groups in Europe that currently benefit from some uplift for systemic support. The short-term debt ratings of 16 banking groups were also placed Under Review with Negative Implications.

These rating actions reflects DBRS’s view that recent developments in European regulation and legislation mean that there is less certainty about the likelihood of timely systemic support for these systemically important banks (SIBs). Currently, the final ratings of such banks benefit from an uplift of one or more notches above their intrinsic assessment (IA).

… which fed through to HSBC Bank Canada:

DBRS Limited (DBRS) has today placed the Long-Term Deposits and Senior Debt as well as the Subordinated Debt ratings of HSBC Bank Canada Under Review with Negative Implications. This change is a direct result of the concurrent rating review of HSBC Holdings plc, the parent entity of HSBC Bank Canada. The ratings of HSBC Holdings plc were placed Under Review with Negative Implications following the anticipated changes in regulation concerning government support.

Preferred shares are not affected by these changes, but outstanding instruments from the affected institutions are:

BMO.PR.J, BMO.PR.K, BMO.PR.L, BMO.PR.M, BMO.PR.Q, BMO.PR.R, BMO.PR.S, BMO.PR.T, BMO.PR.W.

BNS.PR.A, BNS.PR.B, BNS.PR.C, BNS.PR.D, BNS.PR.L, BNS.PR.M, BNS.PR.N, BNS.PR.O, BNS.PR.P, BNS.PR.Q, BNS.PR.R, BNS.PR.Y, BNS.PR.Z.

CM.PR.O, CM.PR.P, CM.PR.Q.

HSB.PR.C, HSB.PR.D.

NA.PR.M, NA.PR.Q, NA.PR.S, NA.PR.W

RY.PR.A, RY.PR.B, RY.PR.C, RY.PR.D, RY.PR.E, RY.PR.F, RY.PR.G, RY.PR.H, RY.PR.I, RY.PR.J, RY.PR.K, RY.PR.L, RY.PR.M, RY.PR.W, RY.PR.Z

TD.PF.A, TD.PF.B, TD.PF.C, TD.PF.D, TD.PF.E, TD.PR.S, TD.PR.T, TD.PR.Y, TD.PR.Z.

This entry was posted on Wednesday, May 20th, 2015 at 10:16 pm 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.