Fitch Maintains First Niagara Financial Group on Positive Watch
KEY RATING DRIVERS
IDRs, NATIONAL RATINGS AND SENIOR DEBT
In Fitch's view, FNFG's commercial real estate (CRE) business and residential mortgage portfolio (roughly about \\$14.7 billion) should continue to experience steady credit performance. However, Fitch has noted concerns with FNFG's risk profile given aggressive growth. Further, the company also entered relatively new business lines such as indirect auto, and asset-based lending at a time when competition for loans is fierce. Despite continued stable asset quality measures, Fitch believes FNFG's historical credit metrics may not be indicative of future performance.
FNFG is maintained on Rating Watch Positive. It reflects the pending acquisition by KeyCorp, which in Fitch's view, address a number issues that have been affecting the company. These include its relatively weak capital position, low profitability, and rapid growth. Fitch expects to resolve FNFG's Rating Watch upon the completion of the transaction with KEY, with closing expected in 3Q16, subject to customary closing conditions, including required regulatory approvals
SUPPORT RATING AND SUPPORT RATING FLOOR
Similar to most commercial U.S. banks, KEY and FNFG have a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, KEY and FNFG are not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not currently incorporate any support.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
FNFG's preferred securities are rated five notches below its VR. Preferred stock is notched two times from the VR for loss severity, and three times for non-performance. Hybrid securities ratings are in accordance with Fitch's criteria and assessment of the instruments' non-performance and loss severity risk profiles. Thus, these ratings have been affirmed due to the affirmation of the VR.
HOLDING COMPANY
FNFG's IDR and VR are equalized with those of its bank subsidiary, First Niagara Bank, reflecting its role as the bank holding company, which means it 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 default probabilities.
SUBSIDIARY AND AFFILIATED COMPANY
The IDRs and VRs of FNFG's bank subsidiary benefits from the cross-guarantee mechanism in the U.S. under FIRREA, and therefore the IDRs and VRs of First Niagara Bank NA are equalized across the group.
LONG- AND SHORT-TERM DEPOSIT RATINGS
FNFG's uninsured deposit ratings 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
IDRs, NATIONAL RATINGS AND SENIOR DEBT
FNFG's ratings will likely be upgraded and equalized with Key upon the completion of the acquisition. However, FNFG's ratings could come under negative pressure should KEY be unable or unwilling to complete the acquisition.
SUPPORT RATING AND SUPPORT RATING FLOOR
FNFG's Support Rating and Support Rating Floor are sensitive to Fitch's assumption as to capacity to procure extraordinary support in case of need.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
FNFG's preferred securities are rated five notches below its VR. Preferred stock is notched two times from the VR for loss severity, and three times for non-performance. Hybrid securities ratings are in accordance with Fitch's criteria and assessment of the instruments' non-performance and loss severity risk profiles. Thus, these ratings have been affirmed due to the affirmation of the VR.
HOLDING COMPANY
Should FNF 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 First Niagara Bank.
SUBSIDIARY AND AFFILIATED COMPANIES
The IDRs and VRs of FNFG's bank subsidiary benefits from the cross-guarantee mechanism in the U.S. under FIRREA, and therefore the IDRs and VRs of First Niagara Bank NA are equalized across the group.
Fitch has maintained the following ratings on Rating Watch Positive:
First Niagara Financial Group, Inc
--Long-term IDR 'BBB-';
--Short-term IDR 'F3';
--Viability rating 'bbb-';
--Senior unsecured 'BBB-';
--Preferred stock 'B';
--Subordinated debt 'BB+'.
First Niagara Bank
--Long-term deposits 'BBB';
--Long-term IDR 'BBB-';
--Viability 'bbb-'
--Short-term deposits 'F3';
--Short-term IDR 'F3'.
Fitch has affirmed the following ratings:
First Niagara Financial Group, Inc
First Niagara Bank
--Support at '5';
--Support Floor at 'NF'.
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