DBRS Changes Trend on Seven Canadian Banking Groups to Negative from Stable due to Evolving View on Support

DBRS Limited (DBRS) has today changed the trend on the senior and subordinated debt ratings of six Canadian Banks and their subsidiaries plus Desjardins Group (Desjardins) and its issuing entities to Negative from Stable. Additionally, Negative trends have been placed on those related short-term ratings that might be affected by a long-term rating change under DBRS methodologies.

The rating action reflects DBRS’s view that anticipated changes in Canadian legislation and regulation mean that the potential for timely systemic support for these systemically important institutions is declining and is likely to eventually result in a change in DBRS’s support assessment to SA3 from SA2 for these institutions. Currently, the final ratings of such deposit-taking institutions benefit from an uplift of one notch above their intrinsic assessment because of the SA2 support assessment. At the same time, DBRS notes that additional protection for non-bail-inable debt and deposits may eventually be provided by bail-inable senior debt under the anticipated bail-in debt regime. DBRS will assess the impact of the “Taxpayer Protection and Bank Recapitalization Regime” rules as more details are made available by the authorities.

DBRS currently has an SA2 support assessment for Desjardins based on DBRS’s view of likely support from the Government of Canada for this institution, which is systemically important for Québec. As DBRS’s view of Canadian Government support for the large banks shifts, so too will the potential for support for other deposit-taking institutions. While DBRS continues to view support for Desjardins as likely from the Province of Québec, a decline in support from Canada for the large banks and Desjardins may result in a change in the rating. Consequently, Desjardins rating trends have also been changed to Negative.

In other provinces, credit unions as well as their systems and centrals remain important for those individual provinces. In many rural areas, credit unions are the only providers of banking services. In addition, various provinces have 100% deposit guarantee programs. These systems, however, are not included in current legislative proposals. Accordingly, DBRS has not changed its view of the likelihood that provinces will support their credit union systems and centrals. Moreover, DBRS’s existing SA2 support assessment for the various credit union centrals is based on provincial government support and there are no trend changes in this announcement related to the centrals.

DBRS TELECONFERENCE
DBRS will host a teleconference tomorrow on bank rating actions related to systemic support hosted by Alan Reid, Group Managing Director, Global Financial Institutions and Sovereign Ratings Group. The discussion will include comments from Elisabeth Rudman, John van Boxmeer, William Schwartz and other members of the Global Financial Institutions Group. The discussion will last approximately 30 minutes and will be followed by a question-and-answer session.

TELECONFERENCE DETAILS
Date: Thursday, May 21, 2015
Time: 4 p.m. BST/5 p.m. CET/11 a.m. EDT

Dial-In Details:
North America (Toll-Free): +1 800 379 4140
United Kingdom (Toll-Free): 0800 4960 495
International: +44 20 8196 2881
Reservation Number: 21768960

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2015); Global Methodology for Rating Banks and Banking Organisations (June 2014); Rating Canadian Credit Union Centrals and Desjardins Group (December 2014); and Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015), which can be found on the DBRS website under Methodologies.

These ratings are endorsed by DBRS Ratings Limited for use in the European Union.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.