Morningstar DBRS Places Canadian Western Bank’s Credit Ratings Under Review With Positive Implications

DBRS Limited (Morningstar DBRS) placed the credit ratings of Canadian Western Bank (CWB or the Bank), including the Bank’s Long-Term Issuer Rating of A (low), Under Review with Positive Implications. This credit rating action follows the June 11, 2024, announcement that the National Bank of Canada (National; rated AA with a Stable trend) has entered into a definitive agreement to acquire CWB, subject to approval by the Bank’s shareholders and receipt of required regulatory approvals.

KEY CREDIT RATING CONSIDERATIONS
The Under Review with Positive Implications designation reflects Morningstar DBRS’ view that CWB’s credit ratings will benefit from the acquisition by National, a more highly rated and diversified financial institution.

National will acquire all of the issued and outstanding common shares of CWB by way of a share exchange, valuing the Bank at about $5.0 billion. Upon closing, CWB shareholders will own approximately 10.5% of National on a pro forma basis. The transaction is not subject to any financing condition. The sale is expected to close by the end of 2025, at which time Morningstar DBRS expects to resolve the review.

CREDIT RATING DRIVERS
If the transaction closes, CWB’s credit ratings would likely be equalized with the credit ratings of National. If the acquisition does not close, Morningstar DBRS would remove CWB’s credit ratings from Under Review with Positive Implications and likely confirm the credit ratings with Stable trends.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Good/Moderate

Earnings Combined Building Block (BB) Assessment: Good/Moderate

Risk Combined Building Block (BB) Assessment: Strong/Good

Funding and Liquidity Combined Building Block (BB) Assessment: Good/Moderate

Capitalisation Combined Building Block (BB) Assessment: Good/Moderate

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/423293

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030.

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 4, 2024) https://dbrs.morningstar.com/research/433881. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at dbrs.morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS’s outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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