* Cuts five of Canada's top six banks
* Cites concerns with housing sector, economy, consumer debt
* Lenders put on credit watch in October
* RBC, which was downgraded in June, excluded
* Bank shares rise in spite of cut
By Cameron French
Jan 28 Moody's Investors Service has cut the
ratings of six Canadian financial institutions, including the
previously "Aaa" rated Toronto-Dominion Bank, due to
concerns about rising consumer debt and high housing prices.
TD, the only publicly traded bank that still carried Moody's
top rating, was downgraded, along with Bank of Nova Scotia
, Canadian Imperial Bank of Commerce, Bank of
Montreal, National Bank of Canada and Caisse
Central Desjardins, Canada's largest association of credit
unions, Moody's said on Monday.
The cuts, which were widely anticipated after Moody's put
the lenders on credit watch in October, were all by one notch.
Ratings downgrades typically lift the cost of borrowing for
the affected financial institution.
However, investors did not seem perturbed by the action, as
shares of all five TSX-listed banks rose on Monday, led by
Scotiabank, which climbed 0.8 percent to C$58.95.
"I'm not surprised to see that there wasn't a lot of market
movement, I think it's already been reflected in the market,"
said Tom Lewandowski, a St. Louise-based analyst at Edward
"In my opinion, it's jut an additional acknowledgement of
the risks that are out there."
The only major Canadian bank not included in the cut was top
player Royal Bank of Canada. That was because Moody's
cut RBC's ratings by two notches last June as part of a review
of 17 global banks.
Canada's banking system has been named the soundest in the
world five years in a row, and indeed Moody's noted the banks
remain among the highest rated in the agency's global rating
But the outlook for the sector has become murky due to
record consumer debt levels, combined with increased downside
risks to the Canadian economy, Moody's said.
"High levels of consumer indebtedness and elevated housing
prices leave Canadian banks more vulnerable than in the past to
downside risks the Canadian economy faces," the agency said in a
Canadian consumer debt as a percentage of household income
hit a record 165 percent during the third quarter, which is
around the level of U.S. consumer debt before the 2008 housing
Canada's housing sector largely side-stepped the U.S. crisis
and has continued to charge ahead. But recent softness in
activity and pricing has suggested the sector may be peaking.
Moody's also pointed to high capital markets exposure at
Bank of Montreal and National Bank, which increases those banks'
exposure to a market downturn.
Moody's now rates TD's long-term debt at Aa1. Scotiabank and
Caisse central Desjardins are at Aa2, and the others are at Aa3.