DBRS Confirms Ratings on DundeeWealth Inc. at BBB and Pfd-3

DBRS has today confirmed the Issuer Rating for DundeeWealth Inc. (DW or the Company) at BBB and the corresponding Preferred Shares, Series 1 rating of Pfd-3. The ratings have a Stable trend.

The rating confirmations reflect the continuing success and stable profitability of the Company’s investment management business, which has seen assets under management (AUM) in recent years grow at a substantially faster rate than the Canadian mutual fund industry. Growth in AUM has been the result of strong investment fund performance and the timely introduction of innovative wealth-management products. However, the positive results for the investment management segment are offset by the negative contribution from the Company’s financial services segment, in addition to the more volatile corporate finance and capital markets activities. While there are revenue synergies between the investment management and the retail distribution operation that might justify some of the latter segment’s losses, the Company’s fully integrated manufacturing and distribution model has nevertheless not yet proven itself to be financially efficient.

The Company’s prior financial services business model was put under stress by 2007 credit market difficulties that increased the need for the liquidity of Dundee Bank, and the Company reacted by purchasing Dundee Bank’s illiquid asset-backed securities at face value in August 2007. The decision to sell Dundee Bank to the Bank of Nova Scotia (BNS) in late 2007 for cash proceeds of $260 million in addition to the sale of treasury shares representing an 18% interest in the Company for proceeds of $348 million was prudent and necessary to free the Company from having to fund future capital requirements of Dundee Bank. Simultaneously, Dundee Corporation granted BNS a right of first offer for its controlling ownership position in the Company. At the same time, however, the Company retains the ability to offer its clients banking products through a white label agreement with BNS while eliminating its requirement to capitalize the growing bank operation. Additional restructuring initiatives should also help the Company to realize potential expense and revenue synergies.

Having realized close to $600 million in proceeds from the transactions with BNS, the Company’s capital structure remains no more aggressive than it was following the $330 million acquisition of the Caisse de dépôt et placement du Québec’s 16.3% interest in the operations of the Company in Q1 2007, which was partially funded by debt. Moreover, the close strategic relationship with BNS places the Company in strategically strong hands, which DBRS regards as being a positive factor.

Note:
All figures are in Canadian dollars unless otherwise noted.