* Ratings agency cuts debt on six Canadian financials
* Cites housing-related concerns, worries of riskier assets
* Downgrade follows Moody's warning
* Shares little changed
By Cameron French
TORONTO, Dec 14 Bank of Nova Scotia,
one of Canada's largest banks, took issue on Friday with
Standard & Poor's decision to cut its debt ratings, saying its
international reach helps cushion it from a slowdown in Canadian
S&P downgraded credit ratings on six Canadian financial
institutions late on Thursday, a move that could raise their
borrowing costs and crimp profit margins on the loans they make.
In addition to Scotiabank, Canada's No. 3 lender, the credit
rating agency lowered ratings on Caisse Centrale Desjardins, a
Quebec-based federation of credit unions. Also cut were No. 6
bank National Bank of Canada, Montreal-based Laurentian
Bank of Canada, mortgage lender Home Capital Group
and Vancouver-based Central 1 credit union.
The downgrade, which follows Moody's Investors Service's
move in October to put five top Canadian banks on credit watch,
is the latest sign of trouble for a banking industry widely
considered the world's soundest.
Like Moody's, S&P said it was concerned about high Canadian
consumer debt and a vulnerable housing market, which has shown
signs that it may be peaking, raising worries of a sharp
It also raised concerns that slowing profit growth could
force the lenders to embrace riskier assets.
Scotiabank and Desjardins disagreed with the ratings
agency's assessment of risks.
"One of our key strengths is our broad diversification - by
geography, product and customer. However, S&P's methodology does
not adequately recognize the benefits of this diversification,"
Scotiabank spokeswoman Ann DeRabbie said in an e-mail.
Scotiabank has international operations in more than 50
countries, with a heavy focus on Latin America, the Caribbean,
Louis-Daniel Gauvin, general manager of Caisse Central
Desjardins, echoed Scotiabank's statement.
"It's a disappointment, because we feel our financial
strength has certainly not changed."
He said it was too early to tell if the move would raise the
Caisse's borrowing costs.
Canadians have continued to pile on debt in spite of
government warnings that a sudden rise in interest rates could
lead to mass defaults.
Statistics Canada said on Thursday that the ratio of credit
market debt to disposable income rose to a record 164.6 percent
in the third quarter from the previous record high of 163.3
Fears of slowing lending growth and the potential for a
housing sector slump have prompted Canadian banks to warn in the
most recent reporting period that slowing domestic loan growth
will squeeze profit gains in 2013.
In a statement, S&P said the downgrades reflect expectations
that a slowing economy could exacerbate competition for loans
and deposits, and put pressure on bank margins and
"We also believe that Canadian finiancial institutions risk
tolerances may increase to compensate for lower profitability by
reaching for yield through investments, more aggressive lending
in higher-yielding loans... or potentially a pick-up in merger
and acquisitions activity," S&P said.
The agency lowered its long- and short-term issuer credit
ratings on the six institutions by one notch, but assigned a
"stable" outlook to the companies.
Following the downgrade, Scotiabank and Desjardins'
long-term ratings are at A+, while National is at A-, Laurentian
is at BBB, Home Capital is at BBB- and Central 1 is at A.
In July, S&P lowered its outlook to "negative" from "stable"
on Scotiabank, National Bank, Laurentian, Credit 1, Home
Capital, and two other banks.
National, Laurentian, and Home Capital did not respond to
requests for comment.
The companies' shares were little changed in Toronto Stock
Exchange trading on Friday, as activity slowed ahead of