Moody’s Investors Service has affirmed Toronto-Dominion Bank’s long-term deposit and bank financial strength rating, but changed its rating outlook to negative from stable, the agency said Friday.

The rating outlook for TD’s U.S. holding company — TD Banknorth Inc. — was also changed to negative.

Meanwhile, the outlook on TD Bank NA’s strength rating remains stable. In addition, the outlook on TD’s short-term ratings remains stable, Moody’s said.

These rating actions follow the announcement by TD of a sizable write-down related to a portfolio of corporate debt securities and associated credit default swaps.

In affirming the ratings, Moody’s noted “TD’s strong market standing in virtually all Canadian retail financial services, solid risk-adjusted profitability, and excellent asset quality.”

Moody’s also noted that “the fourth quarter write-down is the first material loss reported by TD since the inception of the credit market turmoil, and that the bank has avoided most of the exposures that have affected many of its North American peers.”

The change in TD’s rating outlook is based on Moody’s view that the risk positioning at TD has deteriorated over the past year. Three risk concentrations concern Moody’s:

> the almost $10 billion credit-trading portfolio that produced a large write-down this quarter;

> a sizable debt and equity commitment to the leveraged buy-out of Bell Canada Enterprises, Inc. and

> a $3.6 billion portfolio of Alt-A U.S. residential mortgages.

“Moreover, TD’s ability to absorb losses is lower than its Canadian peers, given that its adjusted Tier 1 ratio, at 8.3%, is the lowest among the Canadian banks,” Moody’s said.

According to Moody’s, these exposures, looked at cumulatively, suggest that TD may have a risk appetite beyond the expectation currently incorporated in TD’s bank financial strength rating.

Moody’s vp and senior credit officer, Peter Routledge noted that “Moody’s has held a view that TD’s risk positioning was superior to its peers. Three exposures — TD’s credit-trading portfolio, BCE commitment, and Alt-A portfolio — suggest that its risk positioning may have weakened.”

In addition, Moody’s notes that there exists, in its view, an elevated level of business risk in 2008 related to TD’s integration of two similarly sized U.S. banks — TD Banknorth and Commerce Bancorp — with very different business models.

IE