MFS Investment Management, which manages more than $10 billion in assets, has been downgraded to “neutral” from “buy” by a leading investment bank.
The bank has been under pressure to cut costs as the Canadian economy slows, and the stock market tumbled this week amid uncertainty about the future of the federal Conservative government.
“This move reflects a deterioration in MFS’ overall credit quality, and reflects our concern that the current level of capitalization in the company could be adversely impacted if the bank is not able to manage its investments appropriately,” wrote Charles C. Loughin, senior vice-president and chief financial officer of MFS.
The investment bank’s stock fell $4.06 to $32.93 on Wednesday, or 3.9%.
MFS shares closed at $32 a share on Friday.
The downgrade was the latest to hit the Canadian banks, whose stock is widely seen as undervalued and undervalued by investors.
The Toronto-Dominion Bank, which has been the target of criticism for its poor performance, fell by nearly a third to $62.26.
The ratings agency said MFS could also lose $3.2 billion in annual revenue from its investments in other companies, including companies that MFS manages.
The Canadian Bankers Association said the bank has struggled to manage the cash it has accumulated from its recent $2.6 billion buyout of the energy-services giant Suez.
The bank has also been grappling with a recent drop in its capitalization and its financial-performance targets, the association said in a statement.
“As MFS continues to grapple with its capital structure, we expect MFS to face additional challenges in the near term as its capital needs continue to be met, as well as to be challenged by a continuing increase in capital costs, which will have an adverse impact on MFS’s capital structure,” the association added.
Investors have taken to Twitter to express their concern about MFS, which the bank previously had pegged at “buy.”
One Twitter user wrote that the bank’s rating “is a good one for MFS but not a very good one in general.”
“You could have been a more competitive bank,” said David Zukoski, a finance professor at Dalhousie University in Halifax.