DBRS Confirms CIBC Mellon Trust Company Ratings at AA (low) and R-1 (middle) with Stable Trends

DBRS Limited (DBRS) has today confirmed CIBC Mellon Trust Company’s (CMT) Long-Term Deposits and Senior Debt rating at AA (low) and its Short-Term Deposits rating at R-1 (middle), both with Stable trends. The ratings apply only to wholesale deposits; CMT has no plans to issue debt under these ratings or to take in retail deposits.

The long-term rating entails a support assessment of SA1, notched down by one rating level from the rating of one of CMT’s two joint venture (JV) owners, The Bank of New York Mellon (BNY Mellon; rated AA, Stable trend, by DBRS). BNY Mellon’s support is of greater significance, given that its business is more closely aligned with CMT and CMT’s larger sister company, CIBC Mellon Global Securities Services Company (GSS; collectively, CIBC Mellon). Anticipated support from CMT’s other JV owner, Canadian Imperial Bank of Commerce (CIBC; rated AA, Stable trend, by DBRS) remains a material consideration in the rating; however, CIBC Mellon is less of a core operation for CIBC. Anticipated support from BNY Mellon is very strong, with the one-notch differential between the long-term ratings of the companies resulting from CIBC Mellon’s operation in a foreign market relative to BNY Mellon and the lack of an explicit guarantee.

CIBC Mellon continues to be a market share leader in the Canadian asset servicing business, roughly tied with RBC Investor and Treasury Services with each business representing about one third of the overall market. CIBC Mellon’s prospective pipeline of bids on asset-servicing mandates and its historical success rate on winning bids, including in 2014, would suggest that it will most likely retain if not grow its market share position going forward. CIBC Mellon’s business was neither largely affected by the notable depreciation in the Canadian dollar in the past year nor highly exposed to the volatility in foreign exchange markets in 2014 and early 2015. The 25 basis point reduction in the overnight rate by the Bank of Canada will be a medium-term headwind for CIBC Mellon given the exposure of its interest income, derived from investing its considerable deposit base in conservative fixed-income securities; however, this interest income pressure should be manageable. In the short term, the interest rate decline will benefit the valuation of the securities portfolio.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2014) and Criteria: Support Assessments for Banks and Banking Organisations (January 2014), which can be found on our website under Methodologies.