Fitch Upgrades M&T Bank Corporation to 'A' Following Large Regional Bank Review; Outlook Stable
The rating action follows a periodic review of the large regional banking group, which includes BB&T Corporation (BBT), Capital One Finance Corporation (COF), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), PNC Financial Services Group (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), UnionBanCal Corporation (UBC), 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, VRs AND SENIOR DEBT
MTB's rating upgrade is supported by the company's idiosyncratic strengths such as its improving capital position, consistent and solid performance during a difficult operating environment and through various economic downturns. Additionally, Fitch views the company's strong franchise, veteran management team, and good revenue diversification favorably.
Fitch views the company's core strengths and profile solidly in-line with other 'A' rated peers. Although MTB's experienced an unusual delay to get the Hudson City (Hudson) transaction closed and still has its written agreement due to BSA/AML in place, Fitch believes these two events are neutral to its 'A' rating.
Fitch notes that MTB has continued to build its capital compared to its historical levels and is in-line with similarly-rated peers. MTB's tangible common equity ratio stood at 8.45% versus 6.41% 10-year average. While MTB's capital level is better than its past history, in Fitch's view, capital ratios will tend to fall on the lower-end of the large regional peer group averages. However, Fitch's believes the company's strong equity generation, good asset quality performance through various credit cycles, solid reserves when compared to net charge-offs (NCOs) and moderate dividend payout help offset the company's leaner capital position.
MTB's core earnings profile is considered to be one of the strongest of its peer group with no support from reserve release. Further, MTB is one of the most consistent performers as its profitability measures have seen less volatility than most of its large regional peers.
Credit performance has also been consistently solid, despite the company's large exposure to commercial real-estate assets (41% of total loans versus large regional peer average of 19% as of June 30, 2015). MTB's NCO's and NPAs measures have been superior versus most of its peer group through numerous economic and real estate downturns; evidence of the strong credit culture at the company. Additionally, Fitch believes the company's reserve coverage also provides good support given loss history.
Further, Fitch considers MTB's management team to be a rating strength given the stable, average tenure of 20+ years with the company. Further, despite a history of acquisitions, board composition has not changed dramatically. Roughly 15% of MTB's ownership is held by management and employees of the company, which creates a strong alignment between management and shareholders interest.
SUPPORT RATING AND SUPPORT RATING FLOOR
MTB has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, MTB is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
MTB subordinated debt is one notch below its VR. The company's trust preferred securities are four notches below the VR; two notches down for loss severity and two notches down for non-performance. MTB's preferred securities are rated five notches below its VR; two notches for loss severity and three for non-performance.
Subordinated debt and other hybrid securities ratings are in accordance with Fitch's criteria and assessment of the instruments' non-performance and loss severity risk profiles. These ratings have been upgraded one notch due to the VR's upgrade.
HOLDING COMPANY
MTB's IDR and VR are equalized with those of its operating companies and banks, 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. The ratings are also equalized and reflect the very close correlation between holding company and subsidiary default probabilities.
SUBSIDIARY AND AFFILIATED COMPANY
The IDRs and VRs of MTB's bank subsidiaries benefit from the cross-guarantee mechanism in the U.S. under FIRREA, and therefore the IDRs and VRs of Manufacturers and Traders Trust Co were also upgraded and are equalized across the group.
LONG- AND SHORT-TERM DEPOSIT RATINGS
MTB's uninsured deposit ratings were also upgraded as they are rated one notch higher than the company'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
RATING SENSITIVITIES
IDR, VR, AND SENIOR DEBT
Following MTB's upgrade, ratings are at the high end of the range given performance and profile of the company. Although not envisioned over the rating horizon, MTB's ratings could have positive momentum should it develop a more diversified franchise through strengthening its consumer/retail penetration and product offerings along with further geographic diversification of its commercial lending book, while successfully integrating Hudson City. This would also entail maintaining peer leading profitability and asset quality measures.
Incorporated in the rating upgrade is the view that MTB will not incur any material regulatory fines and/or restrictions related to its BSA/AML written agreement. Additionally, MTB will be in full compliance with the regulatory order's remediation actions, which should lead to the written agreement being lifted.
Conversely, negative rating drivers would be a more aggressive approach to capital management, and/or announcing an acquisition in the near term given the sizeable Hudson City transaction. In addition, unexpected changes to current business strategy or key executive management would also be viewed negatively.
SUPPORT RATING AND SUPPORT RATING FLOOR
MTB's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings of subordinated debt and other hybrid capital issued by MTB and its subsidiaries are primarily sensitive to any change in MTB's VR.
HOLDING COMPANY
Should MTB'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, Fitch could potentially notch the holding company's IDR and VR from the ratings of the operating companies. However, this is unlikely for MTB given the strength of the holding company's liquidity profile.
SUBSIDIARY AND AFFILIATED COMPANY
As the IDRs and VRs of the subsidiaries are equalized with those of MTB to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in MTB's IDRs.
LONG- AND SHORT-TERM DEPOSIT RATINGS
The ratings of the long- and short-term deposits issued by MTB and its subsidiaries are primarily sensitive to any change in MTB's long- and short-term IDRs.
Fitch has upgraded and revised the Rating Outlook to Stable from Positive for the following ratings:
M&T Bank Corporation
--Long-term IDR to 'A' from 'A-'; Outlook Stable;
--Viability to 'a' from 'a-';
--Preferred stock to 'BB+' from 'BB'.
Manufacturers and Traders Trust Co
--Long-term IDR to 'A' from 'A-'; Outlook Stable;
--Viability to 'a' from 'a-';
--Senior unsecured debt to 'A' from 'A-';
--Subordinated debt to 'A-' from 'BBB+';
--Long-term deposits to 'A+' from 'A'.
Wilmington Trust, N.A. (formerly M&T Bank, NA)
--Long-term IDR to 'A' from 'A-'; Outlook Stable;
--Viability to 'a' from 'a-';
--Long-term deposits to 'A+' from 'A'.
Wilmington Trust Corporation
--Long-term IDR to 'A' from 'A-'; Outlook Stable;
--Subordinated debt to 'A-' from 'BBB+';
--Viability to 'a' from 'a-'.
Wilmington Trust Company
--Long-term IDR to 'A' from 'A-'; Outlook Stable;
--Viability to 'a' from 'a-'.
Provident (MD) Capital Trust I
--Preferred stock to 'BBB-' from 'BB+'.
Fitch has affirmed the following ratings:
M&T Bank Corporation
--Short-term IDR at 'F1';
--Support at '5';
--Support floor 'NF'.
Manufacturers and Traders Trust Co
--Short-term IDR at 'F1';
--Short-term deposits at 'F1';
--Support at '5';
--Support floor 'NF'.
Wilmington Trust, N.A. (formerly M&T Bank, NA)
--Short-term IDR at 'F1';
--Short-term deposits at 'F1';
--Support at '5';
--Support floor 'NF'.
Wilmington Trust Corporation
--Short-term IDR at 'F1';
--Support at '5';
--Support floor at `NF'.
Wilmington Trust Company
--Short-term IDR at 'F1';
--Support at '5';
--Support floor at 'NF'.
The following rating is withdrawn:
Provident Bankshares Corp.
--Preferred stock at 'BB'.
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