moodys down grade canadian banks to negative | General financial discussion | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

sp_Feed Topic RSS sp_TopicIcon
moodys down grade canadian banks to negative
July 8, 2014
2:17 pm
doc
Member
Members
Forum Posts: 84
Member Since:
December 29, 2009
sp_UserOfflineSmall Offline

moodys just downgraded the Canadian banks to negative. What does this mean? like cut interest rates again. yikes

July 21, 2014
4:41 pm
Norman1
Member
Members
Forum Posts: 3275
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

The Moody's Canada press release is at Moody's expects lower predictability of government support for Canadian banks; changes banking system outlook to negative.

It's just the outlook of the banks that has been downgraded from stable to negative. No change in the ratings themselves.

July 28, 2014
9:31 am
Loonie
Member
Members
Forum Posts: 6270
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Any affect on interest rates from this should be on the "up" side, as the investment is deemed riskier.
My question would be, which countries' banks does Moody's still rate as positive?
And,
Would a different gov't in Ottawa improve the rating?

July 28, 2014
3:49 pm
doc
Member
Members
Forum Posts: 84
Member Since:
December 29, 2009
sp_UserOfflineSmall Offline

I thought Canada has the best banks how can they be negative

July 28, 2014
6:40 pm
xxxx
Member
Banned
Forum Posts: 338
Member Since:
June 29, 2013
sp_UserOfflineSmall Offline

Canada's banks ARE well rated - among the highest rating in the world.
I believe the issue re Moodys dealt with the new "bail in" rather than "bail out" concept - referring that if in the rare event that banks had serious financial problems, they would need to look to equity/debt holders/creditors for covering (i.e. more bail-in) - and less from the the govt (i.e. less of a bail-out). Likely arose from the oversight process by OSFI.

July 29, 2014
9:26 pm
Norman1
Member
Members
Forum Posts: 3275
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Only the outlook of the ratings has changed from stable to negative. No change in the ratings themselves as of yet. The banks still have their Aa ratings since their last downgrade in January 2013:

Bank of Montreal: Aa3
Bank of Nova Scotia: Aa2
Canadian Imperial Bank of Commerce: Aa3
National Bank of Canada: Aa3
Toronto-Dominion Bank: Aa1

Downgrade may sound horrible. But, last time, Bank of Montreal was downgraded from Aa2 to Aa3. Hardly a disaster.

This is from page 34 of Moody's Rating Symbols and Definitions about rating outlooks:

Rating Outlooks

A Moody’s rating outlook is an opinion regarding the likely rating direction over the medium term. Rating outlooks fall into four categories: Positive (POS), Negative (NEG), Stable (STA), and Developing (DEV).
...

A stable outlook indicates a low likelihood of a rating change over the medium term. A negative, positive or developing outlook indicates a higher likelihood of a rating change over the medium term. A rating committee that assigns an outlook of stable, negative, positive, or developing to an issuer’s rating is also indicating its belief that the issuer’s credit profile is consistent with the relevant rating level at that point in time.

The time between the assignment of a new rating outlook and a subsequent rating action has historically varied widely, depending upon the pace of new credit developments which materially affect the issuer’s credit profile. On average, after the initial assignment of a positive or negative rating outlook, the next rating action – either a change in outlook, a rating review, or a change in rating – has followed within about a year, but outlooks have also remained in place for much shorter and much longer periods of time. The next rating action subsequent to the assignment of a negative (positive) rating outlook has historically been a downgrade or review for possible downgrade (upgrade or review for possible upgrade) about one half of the time; rating actions in the opposite direction are less common. After the initial assignment of a stable outlook, about 90% of ratings experience no change in rating during the following year.

August 20, 2014
8:39 pm
Jack Manning
Member
Banned
Forum Posts: 379
Member Since:
August 5, 2014
sp_UserOfflineSmall Offline

I'm no expert when it comes to the Canadian banks in Canada but I don't think this will impact much on their common, preferred shares, bonds and other debt issues etc.

I think a greater impact on their share and bond prices will be what happens to the Canadian real estate market and other real estate markets that they have invested in like the U.S., Caribbean etc. and if interest rates rise and stay higher in the next 12, 24 months etc.

Dividend yields on many bank shares look pretty low compared to just 6 or 7 years ago which looks similar to the same problem with government bond rates. This is keeping their prices maybe 5% to 12% higher then they should be.

August 20, 2014
8:51 pm
Jack Manning
Member
Banned
Forum Posts: 379
Member Since:
August 5, 2014
sp_UserOfflineSmall Offline

The range of current dividend yields for common shares for the 6 major Canadian banks are around 3.27% to 3.93% which compared to 6 or 7 years ago were in the 5.10% to 5.70% range if I recall correctly.

Please write your comments in the forum.