DBRS Morningstar Confirms Canaccord Genuity Group Inc. Cumulative Preferred Shares at Pfd-4 (high), Changes Trend to Stable

DBRS Limited (DBRS Morningstar) confirmed the Cumulative Preferred Shares rating of Canaccord Genuity Group Inc.’s (CG or the Company) at Pfd-4 (high) and changed the trend to Stable from Negative. The Company has a Support Assessment of SA3, which implies no expected systemic support.

KEY RATING CONSIDERATIONS
The trend change to Stable reflects DBRS Morningstar’s view that the considerable uncertainties facing financial institutions, particularly those with more limited business models, caused by the Coronavirus Disease (COVID-19) pandemic have begun to abate. CG is a Canadian-based financial institution with $6.1 billion in assets as of Q3 2021, operating in the U.S., the United Kingdom (UK), and Australia, with a focus on capital markets activities and wealth management. The Company reported 9M 2021 revenue of $1.3 billion, up 44% from 9M 2020 earnings of $119 million, double the earnings of the previous year. CG benefited from the businesses it had acquired in 2019, the year prior to the pandemic, namely its U.S. capital markets business as well as its Australian wealth management operations.

In confirming the rating, DBRS Morningstar recognizes CG’s solid niche franchise, with a growing wealth management presence across various geographies, while remaining cognizant of the Company’s increased leverage following its recent wealth management and other acquisitions. The Company has made acquisitions in Canada, the U.S., the UK, and Australia, and although it has now integrated these businesses it will need to continue to leverage the larger platform to further enhance efficiencies. The Company expects the combined businesses’ success and efficiencies should drive profits and enable it to reduce leverage over time. However, DBRS Morningstar remains cognizant that the continued impact of the coronavirus-related downturns could, over the short term, create earnings volatility and impede the Company’s ability to comfortably meet contractual payments.

RATING DRIVERS
Although DBRS Morningstar considers CG as being well placed in its current rating category, over the longer term, further franchise diversification that contributes to sustained and improving earnings across segments while lowering leverage would result in an upgrade. Conversely, weakened credit fundamentals or inconsistent earnings would result in a rating downgrade. Furthermore, given CG’s high reliance on market confidence to support its franchise, any significant operational or reputational issues would likely negatively affect the rating, as would material negative stresses to the Company’s liquidity or funding profiles.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for the Company are as follows: Franchise Strength – Good; Earnings Power – Weak; Risk Profile – Moderate; Funding & Liquidity – Moderate/Weak; and Capitalization – Moderate/Weak.

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

The principal methodologies are Global Methodology for Rating Investment Management Companies (December 7, 2020; https://www.dbrsmorningstar.com/research/370957/global-methodology-for-rating-investment-management-companies) and DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2, 2020; https://www.dbrsmorningstar.com/research/369165/dbrs-morningstar-criteria-preferred-share-and-hybrid-security-criteria-for-corporate-issuers). Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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 under Related Documents or by contacting us at [email protected].

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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