Fitch Affirms Huntington Bancshares' LT IDR at 'A-'; Outlook Stable
The rating action follows a periodic review of the large regional banking group, which includes Huntington Bancshares Inc. (HBAN), BB&T Corporation (BBT), Capital One Finance Corporation (COF), Citizens Financial Group, Inc. (CFG), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Keycorp (KEY), M&T Bank Corporation (MTB), MUFG Americas Holding Corporation (MUAH), PNC Financial Services Group (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION).
Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Large Regional Bank Periodic Review,' to be published shortly.
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT
HBAN's rating affirmation is supported by the company's solid financial profile, including good earnings trajectory, improved funding profile and stable asset quality performance, which is in-line with 'A-' rated large regional peers. Today's rating action also reflects our view that the FMER transaction represents low credit risk, manageable integration, and reasonable cost save estimates given the significant amount of overlap between the two entities. Further, execution risks are viewed as modest given that FMER is a solid institution with good earnings and asset quality performance.
Fitch also believes HBAN solid earnings measures are sustainable, particularly given the company's good loan growth and stable credit performance. Further, the combined entity is expected to deliver improvements to ROAA of 15bps and ROTCE of 300bps compared to HBAN's stand-alone measures by 2018. Fitch believes these forecasted measures are achievable based on cost saves given significant overlap in certain markets and the expected credit performance of FMER's portfolio.
Despite a challenging operating environment, HBAN earnings have been solid with an average return on assets (ROA) of 0.99% for the five sequential quarters, which is in-line with regional peers. Further, on average, net interest margin (NIM) compression has been more manageable versus peers. HBAN's average NIM for the last five quarters stood at 3.16% compared to large regional peer group average of 3.03%.
HBAN's funding profile remains good. Over the last several years, HBAN has been focused on growing its retail deposit base with much success reflected by the increase in non-interest bearing deposits which accounts for about 30%. Nonetheless, similarly to peers, Fitch expects HBAN to experience a manageable level of deposit run-offs. Further, the company has access to multiple sources of including capital markets to meet liquidity needs. The deposit profile of FMER is also similar to HBAN, and the combined entity should easily comply with modified LCR given core funding profile and good on balance sheet liquidity.
In Fitch's view, the combined entity risk profile is in line with HBAN's current ratings and reflects a very similar blend. Post-closing, the loan portfolio composition mirrors HBAN's current mix reflecting 41% in C&I, 13% CRE and 20% Auto/Marine RV. Additionally, HBAN announced an estimated 1.9% credit mark, which appears appropriate given the credit performance and risk profile of FMER.
However, HBAN has continued to experience loan growth that is above the peer average, although much less than the previous year. Much of the growth has come from auto lending and acquisitions that have increased C&I loans. To-date, credit performance has remained stable and NCOs are well below normalized ranges of 35bps to 55bps. Fitch remains cautious regarding C&I lending across the industry which remains very competitive. Additionally, HBAN has a sizeable indirect auto business, which is also an area that experienced significant growth. However, the company has a long, established history of indirect auto lending with strong asset quality measures through various credit downturns. The company has continued to originate the same borrower base with minimal changes to its underwriting practices.
Fitch considers capital levels to be adequate given HBAN's improvements its risk profile. Given the acquisition, HBAN's capital position will decline, however, Fitch views the decrease in the context of the transaction coupled with HBAN's ability to return to stronger capital levels. HBAN's estimated pro forma would be negatively impact CET1 by approximately 100bps at deal close. HBAN's CET1 ratio was 9.8% at 2Q16. The company has also indicated that it expects CET1 to build back to around 9.00%. Further, the company's internal rate of capital generation has been above peer averages, which is evidenced that it can re-build capital.
HBAN's 2016 DFAST severely adverse stress scenarios reflected a much higher capital erosion at 480bps, which incorporated the FMER deal, compared to 130bps for 2015 and 350bps for 2014. In terms of loan losses, HBAN had below peer level of estimated loan losses under the severely adverse scenario for 2016.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
HBAN's subordinated debt is notched one level below its VR for loss severity. HBAN's preferred stock is notched five levels below its VR, two times for loss severity and three times for non-performance, while HBAN's trust preferred securities are notched two times from the VR for loss severity and two times for non-performance. These ratings are in accordance with Fitch's criteria and assessment of the instruments non-performance and loss severity risk profiles and have thus been affirmed due to the affirmation of the VR.
LONG - AND SHORT-TERM DEPOSIT RATINGS
The uninsured deposit ratings of Huntington National Bank. are rated one notch higher than HBAN'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.
HOLDING COMPANY
HBAN's IDR and VR are equalized with those of its operating companies and bank, reflecting its role as the bank holding company, which is mandated in the U. S. to act as a source of strength for its bank subsidiaries. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary failure and default probabilities.
SUPPORT RATING AND SUPPORT RATING FLOOR
HBAN has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, HBAN is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.
RATING SENSITIVITIES
VR, IDRs, AND SENIOR DEBT
Fitch believes HBAN's ratings do not have ratings upside over the near to intermediate term given that performance is in-line with similarly rated peers coupled with its forecasted capital position.
HBAN's ratings are sensitive to its ability to achieve many of the key targets in undertaking this transaction. Specifically, its ratings would be sensitive to its ability to build its CET1 ratio up to 9%. Moreover, HBAN's ratings could be pressured if it is not able to realize/generate the internal rate of return, estimated profitability improvements, and cost saves incorporated in the deal. Further, should unexpected operational and integration risks arise that are material to financial performance HBAN's rating could likely be reviewed for negative rating action.
Additionally, ratings pressure could ensue should management take an aggressive approach to capital management such as future acquisitions of size or a total pay-out ratio that pushes capital below peers.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings for HBAN and its operating companies' subordinated debt and preferred stock are sensitive to any change to HBAN's VR.
LONG - AND SHORT-TERM DEPOSIT RATINGS
The long - and short-term deposit ratings are sensitive to any change to HBAN's long - and short-term IDR.
HOLDING COMPANY
Should HBAN's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies.
SUPPORT RATING AND SUPPORT RATING FLOOR
Since HBAN's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future.
Fitch has affirmed the following ratings:
Huntington Bancshares, Incorporated
--Long-term IDR at 'A-'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability rating at 'a-';
--Senior unsecured at 'A-';
--Subordinated debt at 'BBB+';
--Preferred stock at 'BB'.
--Support at '5';
--Support Floor at 'NF'.
Huntington National Bank
--Long-term deposits at 'A';
--Long-term IDR at 'A-'; Outlook Stable;
--Viability rating at 'a-';
--Senior unsecured at 'A-';
--Subordinated debt at 'BBB+';
--Short-term IDR at 'F1';
--Short-term deposits at 'F1';
--Support at5';
--Support Floor at 'NF'.
Huntington Capital I, II
--Preferred stock at 'BB+'.
Sky Financial Capital Trust III & IV
--Preferred stock at 'BB+
Комментарии