DBRS Confirms CIBC Mellon Trust Company at AA (low); Maintains Stable Trend

DBRS Limited (DBRS) has today confirmed CIBC Mellon Trust Company’s (CMT or the Company) Long-Term Deposits and Senior Debt rating at AA (low) and Short-Term Deposits rating at R-1 (middle). The trend for both ratings remains Stable. DBRS notes that the ratings apply only to wholesale deposits as the Company has no plans to issue debt under these ratings.

CMT, along with its sister company, CIBC Mellon Global Securities Services Company (GSS; jointly, CIBC Mellon), collectively represent one of the leading custodians operating in Canada. With two strong owners, each with a 50% ownership stake, including The Bank of New York Mellon (BNY Mellon; rated AA with a Stable trend by DBRS), the largest global custodian with USD 30.6 trillion of assets under custody and/or administration and Canadian Imperial Bank of Commerce (CIBC; rated AA with a Negative trend by DBRS), CIBC Mellon maintains a strong Canadian asset servicing business.

Although CMT is strong intrinsically, especially given its scale, deep service offering and technologically advanced operating and risk management platforms, the Company’s ratings primarily reflect BNY Mellon’s ownership, as CMT’s business is core to BNY Mellon and its business also leverages BNY Mellon’s expertise and advanced technology platform. Although anticipated support from CIBC is also strong, it is DBRS’s view that the custody business is not core to CIBC’s business model.

Given the important role the Company plays for BNY Mellon’s global custody business, DBRS has assigned a SA1 designation, which implies strong and predictable support from BNY Mellon. The one notch differential in ratings between CMT and BNY Mellon reflects the lack of an explicit guarantee from BNY Mellon and that the joint venture is in a foreign country with low cross border risk. As a supported rating with a SA1 designation, the ratings would likely move in tandem with BNY Mellon’s rating.

CIBC Mellon is a top tier market share leader in the Canadian asset servicing business, with more than $1.7 trillion in assets under administration, as of October 31, 2016. CIBC Mellon’s YE2016 performance significantly improved from the previous year, despite considerable headwinds, including fee compression, strong competition, volatility in foreign exchange markets and lower interest rates. In the upcoming year, DBRS expects the Company’s earnings and internal capital generation to remain solid, with challenges remaining as the landscape becomes increasingly more competitive. There may, however, be some relief as the Bank of Canada increases interest rates toward the latter half of the year or in early 2018.

Overall, balance sheet fundamentals remain solid, reflecting strong asset quality and manageable operating risk. Meanwhile, CIBC Mellon’s funding and liquidity profile remains strong and its capital position remains sound.

With a top tier market share in Canada, CIBC Mellon’s asset servicing business provides a diverse set of custody and related services to institutions.

RATING DRIVERS
Given that CMT’s ratings primarily reflect BNY Mellon’s ratings, any positive rating action on BNY Mellon’s rating would have positive implications on CMT’s ratings. Additionally, any negative ratings action on BNY Mellon or a reduction in anticipated support from BNY Mellon would pressure the ratings.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating
Organizations are hereby incorporated by reference and can be found on the issuer page at
www.dbrs.com.

The principal methodologies are the Global Methodology for Rating Banks and Banking Organisations (July 2016) and DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2017), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and company financials posted on the Office of the Superindendent of Financial Institutions. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

Lead Analyst: Peter Stavropoulos
Rating Committee Chair: Michael Driscoll