DBRS: Mass Downgrade of Bank Preferreds & IT1C

DBRS has announced that it:

has today downgraded the preferred shares and innovative Tier 1 instrument ratings of the Canadian banks it rates, following the application of changes in DBRS’s global banking methodology. The ratings have been removed from Under Review with Negative Implications, where they were placed on April 20, 2009. All other ratings for the Canadian banks are unaffected; related rating trends remain unchanged. The downgrades reflect the revision of DBRS’s views on external support as it relates to preferred shares and the elevated risk of non-payment of preferred dividends relative to the risk of default indicated by senior debt ratings. The downgrades do not reflect any specific credit event at any of the listed institutions or related entities.

The change in methodology affects preferred shares ratings in three ways:

(1) The change in the global banking methodology dictates that the starting point for notching preferred shares will be based on the intrinsic assessment rating, rather than the senior debt rating (which may incorporate the benefit of external support). The primary factor that has led to this change in the methodology is recent actions taken in other jurisdictions that demonstrate no systemic external support for preferred shares. As such, the preferred shares and Tier 1 innovative instruments ratings of the listed institutions and their related entities that benefited from a one-notch uplift in October 2006 (due to the support assessment designation of SA2) will now be removed.

The preferred shares and Tier 1 innovative instruments of the affected institutions are: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank.

(2) The other change in the global banking methodology incorporates the elevated risk of non-payment of preferred dividends relative to the risk of default for more senior debt instruments. As such, the changes in the methodology have increased the base notching, even within the strongest rating categories, and the base notching now expands as the credit quality of the bank migrates downward. Within this approach, there exists some flexibility to adjust the notching for factors that reflect the position of individual banks. Historically, DBRS’s methodology resulted in a fixed relationship across all rating categories.

The preferred shares and Tier 1 innovative instruments of the affected institutions are: National Bank of Canada and Laurentian Bank of Canada.

(3) The final change in the global banking methodology affects SA1 category banks. The preferred shares rating for the subsidiary will be notched relative to the preferred share of the parent in the same way that all debt ratings are notched between the two entities.

The preferred shares and Tier 1 innovative instruments of the affected institution is: HSBC Bank Canada.

DBRS will host a teleconference tomorrow morning, Tuesday June 30, at 11:00 am ET, to discuss today’s rating action.

Interested callers should dial the appropriate number listed below at least five minutes before the 11:00 am ET call time.

Local Callers: 416-695-5800, quoting passcode: 5742370

Toll Free Callers: 800-408-3053, quoting passcode: 5742370

This follows the original announcement that they were on Review-Negative.

Affected issues are:

DBRS Mass Bank Downgrade
Issue Old Rating New Rating
BMO.PR.H Pfd-1 Pfd-1(low)
BMO.PR.J Pfd-1 Pfd-1(low)
BMO.PR.K Pfd-1 Pfd-1(low)
BMO.PR.L Pfd-1 Pfd-1(low)
BMO.PR.M Pfd-1 Pfd-1(low)
BMO.PR.N Pfd-1 Pfd-1(low)
BMO.PR.O Pfd-1 Pfd-1(low)
BMO.PR.P Pfd-1 Pfd-1(low)
BNS.PR.J Pfd-1 Pfd-1(low)
BNS.PR.K Pfd-1 Pfd-1(low)
BNS.PR.L Pfd-1 Pfd-1(low)
BNS.PR.M Pfd-1 Pfd-1(low)
BNS.PR.N Pfd-1 Pfd-1(low)
BNS.PR.O Pfd-1 Pfd-1(low)
BNS.PR.P Pfd-1 Pfd-1(low)
BNS.PR.Q Pfd-1 Pfd-1(low)
BNS.PR.R Pfd-1 Pfd-1(low)
BNS.PR.T Pfd-1 Pfd-1(low)
BNS.PR.X Pfd-1 Pfd-1(low)
CM.PR.A Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.D Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.E Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.G Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.H Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.I Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.J Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.K Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.L Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.M Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.P Pfd-1
[Trend Negative]
[Trend Negative]
CM.PR.R Pfd-1
[Trend Negative]
[Trend Negative]
HSB.PR.C Pfd-1
[Trend Negative]
[Trend Negative]
HSB.PR.D Pfd-1
[Trend Negative]
[Trend Negative]
LB.PR.D Pfd-3(high) Pfd-3(low)
LB.PR.E Pfd-3(high) Pfd-3(low)
NA.PR.K Pfd-1(low) Pfd-2
NA.PR.L Pfd-1(low) Pfd-2
NA.PR.M Pfd-1(low) Pfd-2
NA.PR.N Pfd-1(low) Pfd-2
NA.PR.O Pfd-1(low) Pfd-2
NA.PR.P Pfd-1(low) Pfd-2
RY.PR.A Pfd-1 Pfd-1(low)
RY.PR.B Pfd-1 Pfd-1(low)
RY.PR.C Pfd-1 Pfd-1(low)
RY.PR.D Pfd-1 Pfd-1(low)
RY.PR.E Pfd-1 Pfd-1(low)
RY.PR.F Pfd-1 Pfd-1(low)
RY.PR.G Pfd-1 Pfd-1(low)
RY.PR.H Pfd-1 Pfd-1(low)
RY.PR.I Pfd-1 Pfd-1(low)
RY.PR.L Pfd-1 Pfd-1(low)
RY.PR.N Pfd-1 Pfd-1(low)
RY.PR.P Pfd-1 Pfd-1(low)
RY.PR.R Pfd-1 Pfd-1(low)
RY.PR.T Pfd-1 Pfd-1(low)
RY.PR.W Pfd-1 Pfd-1(low)
RY.PR.X Pfd-1 Pfd-1(low)
RY.PR.Y Pfd-1 Pfd-1(low)
TD.PR.A Pfd-1 Pfd-1(low)
TD.PR.C Pfd-1 Pfd-1(low)
TD.PR.E Pfd-1 Pfd-1(low)
TD.PR.G Pfd-1 Pfd-1(low)
TD.PR.I Pfd-1 Pfd-1(low)
TD.PR.K Pfd-1 Pfd-1(low)
TD.PR.M Pfd-1 Pfd-1(low)
TD.PR.N Pfd-1 Pfd-1(low)
TD.PR.O Pfd-1 Pfd-1(low)
TD.PR.P Pfd-1 Pfd-1(low)
TD.PR.Q Pfd-1 Pfd-1(low)
TD.PR.R Pfd-1 Pfd-1(low)
TD.PR.S Pfd-1 Pfd-1(low)
TD.PR.Y Pfd-1 Pfd-1(low)

The main effect of this, I feel, is the decreased notching between the top banks and the top insurers. Previously, MFC, SLF, PWF & GWO had been ranked a notch below the Big 5 … and I thought that was a little on the skimpy side. Now there’s no notching. Interesting…

Update: It is interesting to note that this is largely a reversal of the the October 2006 Mass Upgrade of Banks.

4 Responses to “DBRS: Mass Downgrade of Bank Preferreds & IT1C”

  1. […] PrefBlog Canadian Preferred Shares – Data and Discussion « DBRS: Mass Downgrade of Bank Preferreds & IT1C […]

  2. […] This is the methodology used in the course of the recent DBRS Mass Downgrade of Banks. […]

  3. […] dramatic change in reported credit quality is largely due to the DBRS Mass Downgrade of Banks. At month-end, the fund held positions affected by this change summarized as […]

  4. […] issues were last mentioned on PrefBlog when they were downgraded to Pfd-2(high) [Trend Negative] by DBRS as part of a mass downgrade of Canadian banks’ preferreds and IT1C […]

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