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People's United Ratings Affirmed by Moody's, Outlook Stable
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Moody's Investors Service, a rating arm of Moody's Corporation (MCO - Free Report) has maintained ratings of People's United Financial Inc. and its bank subsidiary. The rating agency affirmed the long-term issuer rating at Baa2 and a preferred stock non-cumulative rating of Ba1(hyb).
In addition, People’s United’s primary subsidiary, People’s United Bank, has been affirmed at A2 rating for long-term deposits and Prime-1 for short-term deposits. Further, the standalone baseline credit assessment of baa1 for the bank has been maintained.
Notably, the rating outlook has been maintained at ‘stable’.
Rationale behind the Affirmation
The ratings affirmation came on the back of the sustainable position of People’s United and its strong asset quality. Growth in the commercial real estate (CRE) portfolio raises questions regarding the bank’s ability to sustain prudent underwriting among peers, thereby affecting the company's credit profile. As of Mar 31, 2018, per Moody’s, People's United still has huge CRE concentration with 3.3 times of its tangible common equity affecting the credit profile, though down from its 2015 level of 3.7.
However, profitability of People's United has improved since 2015 on rising interest rates and improving liquidity profile which reflects credit strength. Notably, the company’s liquidity has benefited owing to minimal reliability on market funding as it caters a strong deposits market share.
Per Moody’s, the bank also depicts strong asset-risk management. Notably, as of Jun 30, 2018, problem loans were at 0.85% of total loans and performing troubled debt restructurings accounted for about one-third of problem loans. Though compared to peers, People’s United’s net income as a percentage of tangible banking assets remains weak, partly impacted by weaker operational efficiency, however, the efficiency improved to 65% in the first quarter of 2018 from 68% in 2016. Nevertheless, operational efficiency might be affected as costs related to acquisitions and business investments are likely to escalate.
Furthermore, the reaffirmation of stable outlook commensurate Moody's view of the bank’s continued strong asset-quality performance though capital ratios to remain weak than peers with no significant improvement.
Conclusion
The rating outlook is valuable for banks since these preserve investors’ confidence in the stock and boost creditworthiness in the market.
The rising rate environment continues to benefit People’s United’s margin, while an expanding cost base is likely to limit its bottom-line expansion in the upcoming quarters. In addition, People’s United’s potential to capitalize on organic growth amid the ongoing economic recovery remains encouraging.
People’s United currently carries a Zacks Rank #3 (Hold). Also, the company’s shares have gained slightly in the last six months as against the 1.1% decline recorded by the industry it belongs to.
Stocks to Consider
Comerica (CMA - Free Report) has been witnessing upward estimate revisions for the last 30 days. Additionally, the stock jumped nearly 14.3%, year to date. It currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SunTrust Banks, Inc. (STI - Free Report) has been witnessing upward estimate revisions, for the last 30 days. Year to date, the company’s share price has been up more than 14%. It currently flaunts a Zacks Rank of 1.
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People's United Ratings Affirmed by Moody's, Outlook Stable
Moody's Investors Service, a rating arm of Moody's Corporation (MCO - Free Report) has maintained ratings of People's United Financial Inc. and its bank subsidiary. The rating agency affirmed the long-term issuer rating at Baa2 and a preferred stock non-cumulative rating of Ba1(hyb).
In addition, People’s United’s primary subsidiary, People’s United Bank, has been affirmed at A2 rating for long-term deposits and Prime-1 for short-term deposits. Further, the standalone baseline credit assessment of baa1 for the bank has been maintained.
Notably, the rating outlook has been maintained at ‘stable’.
Rationale behind the Affirmation
The ratings affirmation came on the back of the sustainable position of People’s United and its strong asset quality. Growth in the commercial real estate (CRE) portfolio raises questions regarding the bank’s ability to sustain prudent underwriting among peers, thereby affecting the company's credit profile. As of Mar 31, 2018, per Moody’s, People's United still has huge CRE concentration with 3.3 times of its tangible common equity affecting the credit profile, though down from its 2015 level of 3.7.
However, profitability of People's United has improved since 2015 on rising interest rates and improving liquidity profile which reflects credit strength. Notably, the company’s liquidity has benefited owing to minimal reliability on market funding as it caters a strong deposits market share.
Per Moody’s, the bank also depicts strong asset-risk management. Notably, as of Jun 30, 2018, problem loans were at 0.85% of total loans and performing troubled debt restructurings accounted for about one-third of problem loans. Though compared to peers, People’s United’s net income as a percentage of tangible banking assets remains weak, partly impacted by weaker operational efficiency, however, the efficiency improved to 65% in the first quarter of 2018 from 68% in 2016. Nevertheless, operational efficiency might be affected as costs related to acquisitions and business investments are likely to escalate.
Furthermore, the reaffirmation of stable outlook commensurate Moody's view of the bank’s continued strong asset-quality performance though capital ratios to remain weak than peers with no significant improvement.
Conclusion
The rating outlook is valuable for banks since these preserve investors’ confidence in the stock and boost creditworthiness in the market.
The rising rate environment continues to benefit People’s United’s margin, while an expanding cost base is likely to limit its bottom-line expansion in the upcoming quarters. In addition, People’s United’s potential to capitalize on organic growth amid the ongoing economic recovery remains encouraging.
People’s United currently carries a Zacks Rank #3 (Hold). Also, the company’s shares have gained slightly in the last six months as against the 1.1% decline recorded by the industry it belongs to.
Stocks to Consider
Comerica (CMA - Free Report) has been witnessing upward estimate revisions for the last 30 days. Additionally, the stock jumped nearly 14.3%, year to date. It currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SunTrust Banks, Inc. (STI - Free Report) has been witnessing upward estimate revisions, for the last 30 days. Year to date, the company’s share price has been up more than 14%. It currently flaunts a Zacks Rank of 1.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>