PrefBlog

Standard & Poor’s has announced:

•In the past few years, Bank of Montreal (BMO) has demonstrated good risk management with historically low loan losses and increased diversity in revenue streams and loan exposures, and has followed a conservative organic growth strategy.
•We are revising our stand-alone credit profile (SACP) on BMO to ‘a’ from ‘a-‘, to reflect improvements in its risk position. We are also revising our SACP on BMO Financial Corp. (BFC) to ‘bbb+’ from ‘bbb’, to reflect the substantial improvement in non-accruals and modest credit loss experience over the past several years.
•Given the improved stand-alone creditworthiness, we are raising our issue-level ratings on BMO’s non-viability contingent capital (NVCC) and non-NVCC subordinated and hybrid securities. We are affirming our ‘A+/A-1’ long- and short-term issuer credit ratings on BMO and its operating subsidiaries, including BFC.
•The stable outlook on BMO and its operating subsidiaries reflects our expectations that the bank’s financial performance and capitalization will remain stable, and its risk position will remain conservative with measured loan growth, stable credit metrics, and limited acquisition activity.

…
Our stable outlook on BMO and its operating subsidiaries reflects our assumption that, over the next two years financial performance and capitalization will remain stable, and asset quality will remain relatively good, reflecting conservative risk management, measured loan growth, and limited acquisition activity. In addition, we expect that BMO will continue to demonstrate conservative underwriting and improving operating efficiency. We expect the bank’s capital ratios will remain stable with no outsize capital-intensive acquisitions. We expect our S&P Global Ratings RAC ratio for BMO will remain in the middle of the 7%-10% capital range, which we deem adequate.

We could lower our assessment of BMO’s stand-alone creditworthiness if we were to see signs of an elevated risk appetite (for example, double-digit loan growth in the U.S.). We would also lower our SACP on BMO if credit quality weakens materially (particularly in mid-market U.S. commercial lending), or if the bank were to undertake aggressive capital actions (such that the RAC ratio declined below 7% on a sustained basis). Nevertheless, given BMO’s high systemic importance in Canada, we would lower our ratings only if its stand-alone creditworthiness were to decline by more than two notches. An upgrade is unlikely over our two-year outlook horizon because our current ratings already factor in an expectation of continued improvement in operating expenses, consistently strong asset quality, and stable operating performance in BMO’s P&C and capital market segments.

Affected issues are:
NVCC-compliant (to P-2(low)): BMO.PR.B, BMO.PR.C, BMO.PR.D, BMO.PR.S, BMO.PR.T, BMO.PR.W, BMO.PR.Y, BMO.PR.Z

NVCC-non-compliant (to P-2): BMO.PR.A*, BMO.PR.M (called for redemption), BMO.PR.Q, BMO.PR.R* (called for redemption)

BMO.PR.A and BMO.PR.R, both FloatingResets that came into existence through partial exchange from BMO.PR.Q and BMO.PR.M, respectively, are not explicitly listed by S&P on their rating list. This is almost certainly merely sloppiness on S&P’s part.

This entry was posted on Tuesday, August 14th, 2018 at 8:49 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.