Thursday, July 30th32.1°C
26925

Canadian banks downgraded

Five big Canadian banks and a credit union were downgraded Monday by Moody's rating agency, which believes they will be more vulnerable than in the past if there's a major shock to the economy.

The downgrades, which Moody's had warned were likely to happen, reflect the agency's ongoing concern that Canadian household debt has risen to historical highs -- putting pressure on the institutions' mortgage businesses.

"The Canadian consumer is leveraged almost to the extent that the U.S. consumer was ahead of the housing crash down there some years ago," said Moody's vice-president David Beattie.

As a result, Moody's thinks it's likely that consumers will slow down their borrowing, a major source of business for the banks.

There's also a remote possibility defaults could jump to a dangerous level for the banks if there's a major economic shock that causes a lot of unemployment and a dramatic drop in real estate prices, he said.

"If we thought it was a higher probability, we wouldn't rank the banks as high as we do," Beattie said.

He noted the five banks and the Quebec-based Desjardins credit union remain among the most highly rated of those tracked by Moody's.

Toronto-Dominion Bank (TSX:TD) is the highest rated of the six, at AA1 (down from AAA). Scotiabank and Desjardins drop to AA2 (from AA1), CIBC (TSX:CM), Bank of Montreal (TSX:BMO) and National Bank (TSX:NA) slip to AA3 (from AA2).

A downgrade by a credit rating agency usually means investors will demand a higher interest rate when a company goes to raise cash by issuing bonds or other debt.

The rating agency said National, BMO and Scotiabank face additional risk from the amount of their profit that comes from capital markets operations, which lend large amounts to corporations and advise businesses on debt and stock issues.

Royal Bank wasn't on the list because its long-term deposit rating had already been dropped to Aa3 from Aa1 in June as part of a move to cut the credit ratings of 15 of the world's largest banks, including Bank of America, JPMorgan Chase, Citigroup and Goldman Sachs.

The Canadian Press


Read more Business News

26959


Recent Trending




Today's Market
S&P TSX14382.78+80.98
S&P CDNX588.30+3.54
DJIA17745.98-5.41
Nasdaq5128.79+17.05
S&P 5002108.63+0.06
CDN Dollar0.7690-0.0002
Gold1096.90+0.60
Oil48.92+0.01
Lumber254.00+2.20
Natural Gas2.883+0.062

 
Okanagan Companies
Pacific Safety0.18+0.00
Knighthawk0.010.00
QHR Technologies Inc1.42+0.02
Cantex0.04-0.01
Anavex Life Sciences0.80+0.01
Metalex Ventures0.045-0.005
Russel Metals19.45+0.24
Copper Mountain Mining0.78-0.07
Colorado Resources0.06+0.00
ReliaBrand Inc0.0045-0.0022
Sunrise Resources Ltd0.03+0.00
Mission Ready Services0.14-0.01
Decisive Dividend Corp2.50-0.08

 





FEATURED Property
1639729recreational cabin
$120,000
more details
image2image2image2
Click here to feature your property
Please wait... loading


Chasing ducks

Photo: Thinkstock.comWhen businessmen tell me that being low priced is the only way to stay in business, I am skeptical. Price is the simplest way for a consumer to compare and is overused as the basi...


Taking care of business

Photo: Thinkstock.comRetirement as a goal has changed a lot over the years. There was a time, it was the only goal. You’d punch the clock and count the years until you could stop punching that t...


Income from home equity

Photo: Thinkstock.comWhen retirement funds run low, seniors often ask if tapping into the equity in their home is the right way to retain financial independence. To see if this option might be a good ...

_



27052

27052


Member of BC Press Council


26465