Wednesday, April 11, 2007

Moody's Downgrades CIBC's Credit Rating

Investment Executive, 11 April 2007

Moody’s Investors Service has altered a number of its ratings on banks, including all of the big Canadian banks, following changes to its bank rating methodology, which incorporates joint default analysis.

It lowered the debt and deposit ratings of 44 banks, the ratings of two banks were confirmed. Of the 44 downgrades, 29 were one notch, 12 were two notches and 3 were three notches. It also upgraded the junior securities of 13 banks as the result of the refinement of its JDA methodology.

The refined methodology, released on March 30, reduces the level of external support incorporated into bank deposit and debt ratings in order to give greater weight to intrinsic financial strength. A number of bank ratings that were upgraded prior to the refinement were identified as being inconsistent with the refined methodology.

The ratings lowered by one notch include: CIBC, ING Bank and ABN Amro.

As for the banks that are seeing the ratings on their capital securities upgraded, the list includes: Bank of Montreal; Bank of Nova Scotia; Caisse Centrale Desjardins du Quebéc; Royal Bank of Canada; and TD Bank.

In the United States, the Bank of New York, JPMorgan Chase Bank, State Street Bank and Trust Co. and Wachovia Bank are also affected, along with several European banks.

CIBC and National Bank also had their subordinated securities upgraded, and their senior debt and deposit ratings lowered. As with the other 11 banks whose subordinated securities were upgraded, the upgrades for CIBC and National Bank result from the refinement of the notching methodology, whereby subordinated securities typically are notched one level below senior debt and deposits and preferred securities and certain deeply subordinated debt securities typically are notched two rating levels below senior debt and deposits.

Additionally, Moody’s raised the senior and subordinated debt and preferred stock ratings for The Bank of New York Company Inc., the holding company of the Bank of New York.
AP, 11 April 2007

Moody's Investors Service has lowered the credit ratings of 44 banks worldwide, including Canada's CIBC, as part of an examination into how it ranks debt held by financial institutions.

ABN Amro Bank, CIBC and ING Bank were among those Moody's cut late Tuesday in an effort to address complaints about a new ranking system it put in place six weeks ago. Moody's had upgraded 150 banks, saying they could rely on a government-sponsored bailout if there were concerns of a financial collapse.

The rating methodology was panned by Merrill Lynch & Co. and others for skewing the entire ratings system. For example, it gave several small Icelandic banks the same triple-A rating as major global corporations like Exxon Mobil Corp.

After considering the complaints, Moody's refined its methodology on March 30 to stress the banks' financial strength instead of any outside help they might get. Of the 44 downgrades, 29 were down one notch, 12 fell two notches, and three were fell three notches.

No U.S.-based banks were among the financial institutions that were downgraded. Moody's left intact upgrades to U.S. banks like Bank of America Corp., JPMorgan Chase & Co., and Washington Mutual Inc.