Moody’s Investors Service has downgraded its ratings on certain hybrid securities of the big five Canadian banks, in line with its revised guidelines for rating bank hybrids, which were published late last year.

The rating agency said Monday it downgraded the banks’ non-cumulative perpetual preferred securities and innovative Tier 1 and Tier 2A Instruments, after putting them on review for possible downgrade in November 2009.

The exception to this latest action was Bank of Montreal, which had its securities downgraded in a previous rating action. All the other ratings and outlooks for the Canadian banks and their subsidiaries remain unchanged, it noted.

The firm explained that before the global financial crisis, its ratings assumed that support provided by national governments and central banks to shore up a troubled bank would, to some extent, benefit the holders of bank subordinated capital as well as the senior creditors.

“The systemic support for these instruments has not been forthcoming in many cases,” it observed, therefore it adopted a revised methodology that largely removes previous assumptions of systemic support, resulting in Monday’s rating action.

Moody’s said its latest rating action “removes systemic support from Canadian bank hybrids and, where applicable, adds an additional rating notch for those instruments with non-cumulative coupon payments.”

IE