OREANDA-NEWS. Fitch Ratings has affirmed BancWest Corporation's (BWE) Long-Term Issuer Default Rating (IDR) at 'A'. The Rating Outlook for the Long-Term IDR is Stable. Fitch has also affirmed BWE's Viability Rating (VR) at 'a-'. The ratings of the subsidiary banks, Bank of the West (BOW) and First Hawaiian Bank (FHB) were also affirmed.

This action follows Fitch's recent rating action on BWE's parent company, BNP Paribas (BNPP). Refer to press release titled 'Fitch Affirms BNP Paribas at 'A+'; Outlook Stable, dated Dec. 8, 2015 for additional information on the BNPP rating action. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS - IDRs and VRs

The IDRs of BWE and its subsidiary banks are linked to that of their 100% owner, BNP Paribas (BNPP). BWE's IDR reflects the higher of its support-driven IDR or its standalone rating, the VR. BWE's support-driven IDR is 'A', while its stand-alone rating or VR is 'a-'. BWE's institutional support-driven IDR is higher than its VR, reflecting its important role in the group.

BWE accounts for approximately 9% of consolidated parent risk-weighted assets and pre-tax income, and we believe that BNPP has the ability and propensity to provide support to BWE.

BWE's VR is driven by the company's good asset quality and conservative risk profile. Further, Fitch views capital as solid, and appropriate for the company's risk profile. These strengths are balanced against BWE's weaker profitability metrics, and limited revenue diversity. Further, BWE has not finalized detailed plans regarding the creating of its intermediate holding company as required under Dodd-Frank.
BWE's asset quality remains a rating strength as credit quality metrics compare favorably to large regional peers.

Nonperforming assets (including accruing troubled debt restructurings)) peaked at roughly 3.7% at year-end 2010, but have declined since then to approximately 1.3% of loans and OREO at Sept. 30, 2015. BWE's credit profile also benefits from a conservative risk appetite demonstrated by lower charge offs through the credit cycle. Nonetheless, Fitch expects modest asset quality deterioration in the near term for industry, as well as BWE, especially under a higher interest rate environment.

BWE's deposit profile is considered good, with a large percentage of core deposits, though Fitch notes that BWE's loan to deposit ratio remains above the large regional peer average. Fitch believes this gives BWE less flexibility to fund its assets with lower-cost deposits than its peers, especially under a rising rate environment. However, similar to other foreign-owned banks, deposit costs are already above those of other large regional banks.

Fitch believes BWE's capital levels are appropriate given the risk inherent in the company's balance sheet. Common equity Tier 1 capital was 11.4% as of Sept. 30, 2015, up 20bps over the past couple quarters. Fitch views capital levels as adequate in context of the bank's lower risk profile, as evidenced by historical loan losses.

Starting on Jan. 1, 2016, BWE will be required to participate in the annual DFAST and CCAR annual stress testing process. Other FBOs have had a challenging time with first-time CCAR submissions due to qualitative concerns. However, Fitch notes there is very little visibility into this risk for BWE, or its peers. BWE's current capital levels are well above regulatory capital requirements but may not necessarily translate to an automatic CCAR and DFAST non-objection to its capital plan.

Given the continued low interest rate environment, paired with a high reliance on spread income reliance (75%), earnings remain pressured. Through the first nine months of 2015, BWE reported an ROA of 76 bps, which trails the large regional peer average of roughly 100 bps. BWE's earnings continue to be negatively impacted by higher interest-bearing deposit costs relative to large regional peers, despite loan yields that fall in line with industry averages.

The company's earnings profile includes increased spending related to annual stress testing and the pending formation of an Intermediate Holding Company (IHC), required by July 1, 2016 under regulatory rules for certain foreign-owned bank institutions. Fitch expects profitability measures to remain around current levels, absent a meaningful increase in the interest rate environment, particularly important for BWE given its reliance on spread income.

BWE is considered an FBO under the Federal Reserve's rules set forth in March 2014. The rules require an intermediate holding company to hold all U.S. bank and nonbank subsidiaries other than U.S. branches or U.S. agencies.

Fitch expects that BNPP may move its U.S. broker/dealer, BNP Paribas Securities Corp. (BNPSC), under the umbrella of the intermediate holding company by July 2016. Given the size of the broker/dealer ($106 billion in assets at YE2014), Fitch expects that the company will evaluate the overall size and operations of BNPSC, especially in light of capital implications for the consolidated company. BNPSC's balance sheet primarily consists of repo securities and securities owned at fair value. Fitch notes that the repos can be reduced quickly.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

BWE's Support Rating of '1' reflects the high probability of support from its parent, BNPP. BWE's support-driven IDR has historically been one notch below BNPP, reflecting Fitch's view that BWE is strategically important to BNPP, though not core.
Similar to other European banks with operations in the U.S., Fitch expects the European banks will continue to evaluate the composition/size of their U.S. activities as changes in regulation affect returns on capital. BNPP's U.S. operations (including BWE, U.S. branches and the broker/dealer) accounted for about 14% of total consolidated assets at year-end 2014, a smaller contribution relative to BNPP's global trading and universal peers.

Since this support is based on institutional support, as opposed to sovereign support, there is no Support Rating Floor assigned.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS

BWE's long-term deposit ratings are one notch higher than the company's IDR, which reflect depositor preference for the U.S. banks, and the superior recovery prospects for deposits resulting from depositor preference. BWE's short-term deposit rating at 'F1' is linked to the long-term IDR per Fitch's rating criteria, and as such, are sensitive to changes in the company's IDR.

RATING SENSITIVITIES - IDRs and VRs

The IDRs of BWE and its subsidiaries are directly linked to that of BNPP. Should BNPP's IDR change, the IDRs of BWE would also be affected. Additionally, if BWE becomes less strategically important to BNPP, its IDR could be reviewed for rating action.

Fitch believes that the VRs have limited upside over the near to intermediate term, absent a material improvement in the company's earnings profile, which Fitch views as unlikely. Conversely, negative pressure on the VR may occur in the event of meaningful capital deterioration. Further, as previously mentioned, asset quality deterioration, particularly in the C&I loan portfolio, may have VR implications given the overall size of the C&I book.

Fitch will also evaluate the manner in which BWE complies with IHC rules. Ratings could be sensitive if the resulting capital profile in Fitch's view is weaker following the creation of the IHC.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

BWE's Support Rating is sensitive to changes in a number of factors including but not limited to strategic importance of the financial institution to BNPP; degree of integration with a parent; guarantees and commitments provided by the parent; percentage ownership or control; jurisdiction; track record of support; cost of support; the nature of the owner; and the importance of the franchise to the owning institution.

RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

BWE's long-term deposit ratings are one notch higher than the company's IDR, which reflect depositor preference for the U.S. banks, and the superior recovery prospects for deposits resulting from depositor preference. BWE's short-term deposit rating at 'F1' is linked to the Long-Term IDR per Fitch's rating criteria, and as such, are sensitive to changes in the company's IDR.

Fitch has affirmed the following ratings:

BancWest Corporation
--Long-term IDR at 'A'; Outlook Stable;
--Viability Rating 'a-'.
--Short-term IDR at 'F1';
--Support Rating at '1'.

Bank of the West
--Long-term IDR at 'A'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability rating at 'a-';
--Support rating at '1';
--Long-term deposits at 'A+';
--Short-term deposits at 'F1'.

First Hawaiian Bank
--Long-term IDR at 'A'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability rating at 'a-';
--Support rating a '1';
--Long-term deposits at 'A+';
--Short-term deposits at 'F1'.