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Six Canadian Banks May Be Cut by Moody’s Next Week

Toronto-Dominion Bank (TD) and five other Canadian lenders could have their credit ratings downgraded by Moody’s Investors Service next week, an analyst at the Bank of Nova Scotia said.

Moody’s placed Toronto-Dominion, Bank of Nova Scotia, and four other lenders on review for possible downgrade on Oct. 26, citing the heightened risk to Canada’s economy from rising consumer debt and real estate prices. Toronto-Dominion is the last publicly traded bank rated AAA by Moody’s.

“We continue to watch for the Moody’s downgrade of Canadian banks, which we expect to happen within the week,” Robert Follis, a fixed-income analyst at Bank of Nova Scotia (BNS), wrote in a note to clients today.

Moody’s is also reviewing Bank of Montreal (BMO), Caisse Centrale Desjardins, Canadian Imperial Bank of Commerce and National Bank of Canada. (NA) Toronto-Dominion has been rated Aaa since 2007, Moody’s highest rating. Scotiabank and Caisse Centrale Desjardins are Aa1, the second-highest ranking, and CIBC and National Bank are Aa2.

Moody’s declined to comment, said David Beattie, a vice- president and senior credit officer, in Toronto.

“I expect downgrades to be one to two notches on a standalone basis,” National Bank Financial analyst Peter Routledge said in a phone interview today. “I don’t think spreads will move and I don’t think the equity market will move on this. It’s well telegraphed. The market has already priced it in.”

Royal Bank of Canada, the country’s largest lender, had its credit rating cut two levels to Aa3 by Moody’s on June 21 because of its “significant exposure” to volatile capital markets activities.

Canadian household debt to disposable income rose to 165 percent in the third quarter of last year, compared with 163 percent in the prior three-month period. Sales of existing homes fell 17.4 percent in December from the month before while the average sale price rose.

To contact the reporters on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net; Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editor responsible for this story: Jacqueline Thorpe at jthorpe23@bloomberg.net

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