Fitch Upgrades and Withdraws City National Corporation's Ratings at 'AA-'
OREANDA-NEWS. Fitch Ratings has upgraded City National Corporation's (CYN) Issuer Default Rating (IDR) to 'AA-' from 'A-'; Rating Watch Positive based on Fitch's view of potential institutional support from the new parent, Royal Bank of Canada (RY: rated 'AA'/Stable Outlook by Fitch). Subsequently, Fitch has withdrawn the ratings as the entity no longer exists. This action follows the completion of Royal Bank of Canada's (RY: rated 'AA'/Stable Outlook) acquisition of CYN for approximately $5.0 billion. A full list of rating actions follows at the end of this release.
Following the completion of the acquisition, CYN's Viability Rating (VR) has also been affirmed and subsequently withdrawn at 'a-'.
The holding company, CYN, will no longer exist, but the main bank operating subsidiary, City National Bank (CNB)'s Long and Short-term Issuer Default Ratings (IDRs) have been upgraded to 'AA-' and 'F1+' based on institutional support noted above and will remain outstanding.
KEY RATING DRIVERS
IDRs, NATIONAL RATINGS AND SENIOR DEBT
Fitch believes CYN's acquisition by RY would improve CYN's overall financial profile, as RY plans to make CYN its main U.S. business operation. This will largely consist of continued growth of wealth management businesses, CYN's historical strength, as well as through growth of commercial and private banking activities.
Fitch notes that RY has a strong franchise that includes personal and commercial banking throughout Canada, wealth and asset management operations globally, as well as investor/treasury services and capital markets activities primarily in North America.
VR
Prior to the completion of the merger noted above, CYN's stand alone ratings reflected the company's strong franchise, relatively stable credit metrics, good liquidity position, and capacity to improve earnings in a rising rate environment. These strengths were balanced against CYN's capital levels, which consistently have below peer group averages.
As such, the rating has been affirmed, and subsequently withdrawn as CYN will no longer exist as an independent entity, but rather are linked to RY's ratings.
SUPPORT RATING AND SUPPORT RATING FLOOR
INSTITUTIONAL SUPPORT RATING
Fitch has upgraded the support rating and assigned it an Institutional Support Rating of '1', reflecting the extremely high probability of support from CYN's parent (RY). Since this support is based on institutional support, no Support Floor Rating will be assigned.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
CYN's preferred stock was upgraded to 'BBB' given the upgrade of the IDR. As this issuance is being retired by RY, it has subsequently been withdrawn.
CNB's subordinated debt was upgraded to 'A+' given the upgrade of the IDR noted previously.
KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS
CNB's Long-term and Short-Term deposit ratings have been upgraded to 'AA' and 'F1+', respectively. CNB's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.
RATING SENSITIVITIES
IDRs, NATIONAL RATINGS AND SENIOR DEBT
CNB's IDR ratings have been upgraded to 'AA-'/'F1+', one notch below the parent company given Fitch's views of institutional support and any changes to RY's VR rating, following the completion of the acquisition. These ratings are sensitive to any change in RY's ratings or change in Fitch's view of institutional support. Although RY views the U.S. as a core market, CNB's IDR's could be equalized as it becomes a key and integral part of the RY's business, successful integration of management, and branding efforts.
VR
The Viability Rating is no longer relevant given today's rating withdrawal.
INSTITUTIONAL SUPPORT RATING
The Support Rating is potentially sensitive to any change in Fitch's views regarding RY's propensity or ability to provide timely support to the bank.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings of subordinated debt and other hybrid capital issued by CNY and its subsidiary are primarily sensitive to any change in RY's VR.
Fitch has upgraded and withdrawn the following ratings:
City National Corporation
--Long-term IDR to 'AA-' from 'A-'; Rating Watch Positive;
--Short-Term IDR to 'F1+' from 'F1';
--Senior Unsecured to 'AA-' from 'A-';
--Preferred Stock to 'BBB' from 'BB';
--Support Rating to '1' from '5'.
Fitch has upgraded the following ratings:
City National Bank
--Long-Term IDR to 'AA-' from 'A-'; Rating Watch Positive;
--Short-Term IDR to 'F1+' from 'F1';
--Long-Term Deposits to 'AA' from 'A';
--Short-Term Deposits to 'F1+' from 'F1';
--Subordinated debt 'A+' from 'BBB+';
--Support at '1' from '5'
Fitch has withdrawn the following ratings:
City National Corporation
--Viability Rating 'a-';
--Support Floor at 'NF'.
City National Bank
--Viability Rating 'a-';
--Support Floor at 'NF'.
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