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By Jason Stipp | 01-31-2012 03:00 PM

Two New Wide-Moat Firms; Eight Moat Downgrades

Morningstar StockInvestor editor Paul Larson details moat changes among several banks, plus two new wide-moat names.

Jason Stipp: I'm Jason Stipp for Morningstar. As regular readers know, Morningstar analysts spend a lot of time thinking about a company's economic moat, or its competitive advantage. And we recently had some changes in moat ratings. Some moved up to wide moat; some wide moats moved down to narrow.

Here with me to offer the details is Morningstar's Paul Larson. He is an equity strategist and the editor of Morningstar StockInvestor.

Paul, thanks for joining me.

Paul Larson: Thanks for having me.

Stipp: Let's get the downgrades out of the way first. We had recently a set of a kind of company that we downgraded from wide to narrow. What were those companies, and what's the behind the downgrade?

Larson: Well, the group that we recently downgraded were the remaining banks that we still had at wide moat. The situation was that we had banks rated wide moat from certain geographies that had relatively attractive regulation and also where markets were relatively concentrated, where we basically had oligopolies, namely the Canadian banks, one Australian bank that we recently picked up, and then a handful of other banks around the world.

So, the banks that we downgraded, the five major Canadian banks, Bank of Nova Scotia, Bank of Montreal, CIBC, RBC, and TD. And then the other banks were Svenska Handelsbanken, HSBC, and the Australian Westpac.

Stipp: So, you had actually downgraded some other banks earlier for certain reasons, and so when you took another look at these particular banks, you went ahead and downgraded those as well.

Can you explain why initially you started to downgrade some of the bigger, more well-known banks, perhaps in U.S.? What was behind that? And then why these particular banks, why ... what you thought may have been an advantage really isn't turning out to be as big of an advantage?

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