CM: Preferred Technical Downgrade by S&P

Standard & Poor’s has announced:

  • Following a review under Standard & Poor’s revised bank criteria (published on Nov. 9, 2011), we have affirmed our ‘A+/A-1’ issuer credit rating on Canadian Imperial Bank of Commerce (CIBC). The outlook is
    stable.

  • Our ratings on CIBC reflect our adequate assessments for its business position, capital and earnings, risk position, and liquidity, and average funding.
  • The ratings on CIBC benefit from one notch of uplift for potential extraordinary government support in a crisis.
  • We expect CIBC’s profitability to continue to improve as loan quality improves and the company further executes on its core banking strategy.

As we previously announced, on Dec. 13, 2011, Standard & Poor’s Ratings Services affirmed its ‘A+/A-1’ issuer credit rating (ICR) on CIBC. The outlook is stable. The stand-alone credit profile (SACP) is ‘a’. In addition, we lowered the rating on CIBC’s nondeferrable subordinated debt to ‘A-‘ from ‘A’ and the rating on its preferred stock to ‘BBB+’ from ‘A-‘. CIBC’s nondeferrable subordinated debt is rated one notch below the ‘a’ SACP as opposed to being notched from the ‘A+’ ICR, based on our new hybrid criteria. Nondeferrable subordinated debt is rated below a bank’s SACP in countries whose legal or regulatory frameworks may not support this type of debt in a stress scenario. Recent guidance from Canada’s Office of the Superintendant of Financial Institutions expresses an expectation that all Tier 1 and Tier 2 capital instruments “must be able to absorb losses in a failed financial institution.” We expect different treatment would apply to capital instruments and senior debt as a Canadian bank approaches a state of nonviability. Preferred stock is rated two notches below the ‘a’ SACP, consistent with our new hybrid criteria.

CM has the following preferred share issues outstanding: CM.PR.D, CM.PR.E and CM.PR.G (PerpetualPremium); CM.PR.I, CM.PR.J and CM.PR.P (DeemedRetractible); and CM.PR.K, CM.PR.L and CM.PR.M (FixedReset).

The change has affected the rating of the preferreds on the local scale: CM.PR.D and CM.PR.E are now P-2 (CM.PR.G is not rated by S&P): all other issues are now P-2(high).

Leave a Reply

You must be logged in to post a comment.