DBRS Confirms CIBC Mellon Trust Company Deposit Ratings at AA (low) and R-1 (middle) with Stable Trends

DBRS has today confirmed the Long-Term Deposits and Senior Debt rating of CIBC Mellon Trust Company (CMT) at AA (low) and its Short-Term Deposits rating at R-1 (middle), with Stable trends. The ratings apply only to wholesale deposits; CMT has no plans to issue debt under these ratings.

The long-term rating is composed of a support assessment of SA1, notched down by one rating level from the rating of one of the two joint-venture owners, The Bank of New York Mellon (BNY Mellon; rated AA, Stable trend). Although the anticipated support from its other joint-venture owner, Canadian Imperial Bank of Commerce (CIBC; rated AA, Stable trend), remains a material consideration in the rating, it is not to the same extent as BNY Mellon’s because BNY Mellon’s businesses are asset servicing and issuer services globally, whereas CMT is less of a core operation for CIBC. While the anticipated support from BNY Mellon is very strong, it is difficult for implicit support to match the clarity and legality of an unconditional guarantee. DBRS considers this difference to be worth one notch on the long-term rating. If BNY Mellon’s rating were to fall below CIBC’s rating, it is possible that CMT’s rating would be notched from the higher of the two ratings.

The analysis is based on CMT and its larger sister company, CIBC Mellon Global Securities Services (GSS; collectively, CIBC Mellon). Although separate legal entities, the two companies are operated as a single firm and are viewed in the marketplace as one. CIBC Mellon’s business model revolves around leveraging BNY Mellon’s technology platform in a business where economies of scale are critical.

Limited public financial information is available for CIBC Mellon as it is privately owned and not a reporting issuer. CMT’s results presented in the accompanying rating report are statutory filings with the Office of the Superintendent of Financial Institutions (OSFI), which have different line-item disclosure than generally accepted accounting principles (GAAP) statements and, as such, are of limited use in DBRS’s rating review process. GSS is not directly regulated and does not have public financial statements. A significant portion of DBRS’s analysis is based on non-public financial statements and documentation.

In the second quarter of 2010, CMT sold its corporate trust business to the Canadian subsidiary of its co-owner BNY Mellon (BNY Trust Company of Canada) and in the first quarter of 2011, it completed the sale of the remainder of its issuer-services business (stock transfer and employee share plans) to a third party. Subsequent to the sale, CMT’s business focuses almost exclusively on providing deposit services (Canadian–dollar deposits only, up to an amount that would not result in CMT exceeding regulatory capital requirements) to clients referred to CMT by GSS (because CMT is regulated by OSFI and GSS is not directly regulated).

CMT’s earnings, excluding discontinued operations, improved to $11.3 million in 2010 compared with $9.1 million in 2009, primarily as a result of gains on the sale of securities. Earnings continue to be pressured by the low interest rate environment, although the impact is still muted by the transfer pricing mechanism in place with GSS. CMT’s asset quality and financial risk profile remain stable.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.