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By Sean B. Pasternak
TORONTO - Toronto-Dominion Bank, Bank of Nova Scotia and four other Canadian lenders had their credit ratings cut by Moody’s Investors Service because of high home prices and consumer debt.
Toronto-Dominion, the last publicly traded bank rated Aaa by Moody’s, was cut to Aa1, the ratings firm said today in a statement. Scotiabank fell to Aa2 and the ratings on Bank of Montreal, Canadian Imperial Bank of Commerce, Caisse Centrale Desjardins du Quebec and National Bank of Canada were lowered by one level.
“In the event of a systemic shock -- whether it’s something domestic or it’s something brought on by external risk factors transmitted from Europe or the U.S. to the Canadian economy -- then we would expect, given the size of the Canadian banks’ exposure to consumer loans they would have an elevated level of loan losses,” David Beattie, senior credit officer at Moody’s, said by phone from Toronto.
Toronto-Dominion’s C$650 million ($646 million) of 5.828 percent subordinated notes due July 2023 fell 20 cents to C$116.46. Scotiabank’s C$750 million of 5.65 percent junior notes due in December 2056 fell 38 cents to C$120.44.
The downgrades didn’t faze stock investors, as shares of the biggest Canadian banks showed gains for the day. The nation’s lenders have been ranked the world’s soundest for five straight years by the Geneva-based World Economic Forum.
“To me, it’s minor,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto, which manages about C$4 billion in assets, including bank shares. “It’s not going to be a disaster; the Canadian banks are very well prepared for a slowdown.”
Toronto-Dominion rose 0.2 percent to C$83.78 at 4 p.m. in Toronto. Scotiabank advanced 0.8 percent, Bank of Montreal added 0.6 percent and CIBC was up 0.6 percent.
Royal Bank rose 0.8 percent to C$62.61, a record high, according to the bank. The 10-member Standard & Poor’s/TSX Banks Index rose 0.6 percent to 2207.68, near a record high.
Scotiabank and Caisse Centrale were lowered to Aa2 from Aa1, while Bank of Montreal, CIBC and National Bank were each lowered to Aa3 from Aa2.
Moody’s also removed systemic support from all rated Canadian banks’ subordinated debt, including those issued by Royal Bank of Canada. The ratings company put the lenders on review for possible downgrade Oct. 26.