The Zacks Analyst Blog Highlights:Moody's, Bank of Montreal, Bank Of Nova
Scotia, Canadian Imperial Bank of Commerce and National Bank of Canada
CHICAGO, Oct. 30, 2012
CHICAGO, Oct. 30, 2012 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Moody's Corp. (NYSE:MCO), Bank of
Montreal (NYSE:BMO), The Bank Of Nova Scotia (NYSE:BNS), Canadian Imperial
Bank of Commerce (NYSE:CM), National Bank of Canada (OTC:NTIOF).
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Here are highlights from Monday's Analyst Blog:
Moody's to Downgrade Canadian Banks?
Moody's Investors Service – the credit rating arm of Moody's Corp. (NYSE:MCO)
– has put the long-term ratings of six major Canadian banks on review for a
possible one-notch downgrade. The potential rating revision comes in the wake
of a flagging economy, record-high consumer debt, soaring housing prices as
well as sizeable exposure of banks to capital markets.
Moody's will be reviewing the ratings of Bank of Montreal (NYSE:BMO), The Bank
Of Nova Scotia(NYSE:BNS), Canadian Imperial Bank of Commerce (NYSE:CM),
National Bank of Canada (OTC:NTIOF), and others. The rating of Canada's
largest association of credit unions – Caisse Centrale Desjardins – is also
put on review for a likely downgrade. However, the rating agency has affirmed
the short-term ratings of all these banks, including Caisse Central.
As per Moody's, Canadian banks face a bunch of risks from substantial
increases in the nation's consumer debt over the last few years. The household
debt-to-income ratio came in at 163% in the second quarter of 2012, up from
137% in the second quarter of 2007.This reflects the rising disparity between
the growth in debt and hike in personal incomes.
Another contributor to the escalating consumer debt is the substantial rise in
housing prices. Home sales in September this year dropped nearly 15% from a
year ago due to stringent mortgage lending rules and sluggish economy. Though
Moody's estimates Canadian Gross Domestic Product to grow in the range of
2%–3% for 2013, it is of the opinion that the potential downside risks to the
economy have increased significantly.
Further, external risks including slow recovery of the U.S., deepening
Euro-Zone crisis and moderate growth in the emerging markets will weigh down
on the commodity markets with severe ramifications on the overall Canadian
economy, which will consequently engulf the nation's entire banking system.
In addition to the abovementioned macro economic factors, there are certain
other bank-specific factors taken into consideration by Moody's to assess the
ratings of these Canadian banking biggies. These include the considerable
exposure to volatile capital markets, increased contribution from subsidiaries
threatening the creditworthiness and concentrated franchise structure limiting
Rating Action by Standard & Poor's
In July, Standard & Poor's Ratings Services cut its outlook from 'stable' to
'negative' on seven Canadian banks, over concerns about shakily high housing
prices and consumer debt levels. The banks included Royal Bank of Canada,
Toronto-Dominion Bank, Bank of Nova Scotia, National Bank, Laurentian Bank of
Canada, Home Capital Group Inc. and Central 1 Credit Union.
S&P, on its part, affirmed the ratings of all these banks. However, it
maintained stable outlooks and reaffirmed ratings on five other Canadian banks
including Canadian Imperial Bank and Bank of Montreal.
We believe that Moody's rationale for the possible downgrade is well
justified. Further, removal of the government support from the ratings of the
subordinate debt of some institutions will force the debt holders to bear the
brunt in case of losses, thereby keeping safe the taxpayers' money.
However, it must be mentioned that these aforementioned Canadian banks have
been performing better than their global peers for the last couple of years.
The strong fundamentals and franchise structures of these banks are expected
to absorb the ill effects of the rating downgrades.
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