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Rating Action:

Moody's reviews US subsidiaries of Canadian banks for downgrade

26 Oct 2012

New York, October 26, 2012 -- Moody's Investors Service placed on review for downgrade the long-term debt and deposit ratings of North American bank subsidiaries of Canadian banks affected by its rating actions, "Moody's places Canadian banks on review for downgrade", dated October 26, 2012. The affected banks are subsidiaries of the Toronto-Dominion Bank (TD) and the Bank of Montreal (BMO). All Prime-1 short-term ratings of the respective US entities were affirmed.

RATINGS RATIONALE

Regarding TD's subsidiaries, the affected ratings include the Aa2 long-term deposit rating of TD Bank, N.A. and the A1 issuer rating of its immediate parent, TD Bank US Holding Company. TD Bank, N.A.'s Prime-1 short-term rating was affirmed. The review of these ratings reflects the fact that they benefit from uplift due to Moody's expectation of support for these US entities from their ultimate parent, TD. Any downgrade of TD's ratings would negatively affect the ratings of these US subsidiaries.

At the same time, Moody's placed on review for possible downgrade TD Bank, N.A.'s standalone B- bank financial strength rating, which maps to an a1 baseline credit assessment. The review of TD Bank, N.A.'s standalone credit assessment recognizes the challenges associated with parent TD's growth ambitions in US commercial and retail banking. More specifically, the review will consider TD's stated objective of generating $1.6 billion in adjusted earnings in 2013 from US retail and commercial banking, which implies growth of more than 10% relative to annualized year-to-date 2012 results, an aggressive target given the industry's profitability headwinds. In Moody's view, the loan growth required to realize this objective may be significant, and would come at a time of general economic weakness, which may expose TD Bank, N.A to additional credit risk.

Moreover, as a frequent acquirer, TD reintroduces integration risk on a periodic basis that may not be fully captured in its current standalone credit assessment. For example, earlier this week, it announced the acquisition of Target Corporation's credit card portfolio. This followed the purchase of Chrysler Financial, the former finance affiliate of Chrysler Automotive, in 2011. Both of these businesses are national in scope and significantly expand TD's exposure to those respective asset classes in the US. In addition, through its acquisitions of traditional US banking businesses, TD has also shown a willingness to expand into new geographies.

Despite the fact that both TD Bank, N.A.'s standalone credit assessment as well as parent TD are on review for possible downgrade, a potential downgrade of TD's US subsidiaries is likely to be limited in magnitude to a potential downgrade of TD.

With respect to Bank of Montreal, Moody's placed the A2 issuer rating of BMO Financial Corp., as well as the long-term ratings of its subsidiaries, including the A1 long-term deposit rating of BMO Harris Bank, N.A., on review for possible downgrade. The review of these ratings similarly reflects the fact that they benefit from uplift due to Moody's expectation of support for these US entities from their ultimate parent, Bank of Montreal. Any downgrade of Bank of Montreal would negatively affect the ratings of these subsidiaries. Moody's affirmed BMO Harris Bank's standalone C bank financial strength rating, which maps to an a3 baseline credit assessment, as well as its Prime-1 short-term rating, and they are not on review. A potential downgrade of these entities is likely to be equal in magnitude to a potential downgrade of Bank of Montreal.

Today's announcement follows the placement on review of the ratings of the affected subsidiaries' parents. As noted, these actions are discussed in the press release, "Moody's places Canadian banks on review for downgrade", dated October 26, 2012 and available on moodys.com.

The principal methodology used in these ratings was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Allen H. Tischler
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's reviews US subsidiaries of Canadian banks for downgrade
No Related Data.
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