DBRS Downgrades Five U.S. Hybrid Bank Securities Linked To Preferreds

DBRS has today downgraded five U.S. Hybrid Bank Securities linked to Preferred Shares as listed in the table below. The Trend on all affected hybrid securities is that of each respective issuer’s existing long-term debt.

As an application to DBRS’s methodology, hybrid securities that eventually convert to Preferred Shares or convert to Preferred Shares under stress are rated at the same level as Preferred Shares. Today’s rating action is specifically on all DBRS-rated securities that fit this description. This action is in association and consistent with DBRS’s April 20, 2009 announcement of downgrades of Preferred Shares of U.S. Financial Institutions.

The downgrades reflect DBRS’s view that for banks there is an elevated risk of nonpayment of preferred dividends (which DBRS defines as a default on these instruments) relative to the risk of default indicated by senior ratings than in the past. This conclusion reflects DBRS’s concern that banks and their regulators have become much more focused on conserving capital, particularly common equity, which may be achieved in part by the suspension of preferred dividends. The action also reflects the increasing importance being placed on common equity in the capital structure by regulators and the financial markets that could lead to adverse action on preferreds. The application of DBRS’s methodology has resulted in a generally fixed relationship across rating categories between preferreds and senior issuer ratings, with some flexibility. Today’s actions reflect a revision to DBRS’s methodology whereby the notching has been increased at even the strongest rating categories and expanded as the credit quality of a bank migrates downwards. Within this approach, there remains the flexibility to adjust the notching for factors that reflect the position of individual banks.

Today’s actions apply only to the hybrid instruments that DBRS rates as listed below. Other ratings for these issuers remain unchanged. Importantly, the actions do not reflect any issuer specific credit events. Related rating trends and Under Review placements also remain unchanged. At this time, DBRS has not changed its opinion on those preferred share securities that have the characteristic of ranking as junior subordinated debt and having some ability to defer payments for defined periods on a cumulative basis.

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.