Fitch Ratings has affirmed its Issuer Default Ratings (IDRs) on 14 large regional banks. This follows a thorough review of the peer group.
The banks include BB&T Corporation (BBT - Analyst Report), Capital One Finance Corp.(COF - Analyst Report), Comerica Incorporated (CMA - Analyst Report), Fifth Third Bancorp (FITB - Analyst Report), Huntington Bancshares Incorporated (HBAN - Analyst Report), KeyCorp (KEY - Analyst Report), M&T Bank Corporation (MTB - Analyst Report), PNC Financial Services Group Inc (PNC), Regions Financial Corp. (RF - Analyst Report), SunTrust Banks Inc. (STI - Analyst Report), US Bancorp (USB - Analyst Report), Wells Fargo & Company (WFC - Analyst Report), UnionBanCal Corporation and Zions Bancorp. (ZION - Analyst Report).
Based on ratings, the group has been divided into three distinct categories. The first category banks have an ‘AA-‘or ‘A+ rating. The ratings are sustained mainly by these banks’ sturdy earnings profile, sensible risk profiles, consistent performance through the recent financial crisis, and steady earnings growth. Although asset quality of some of these banks deteriorated, sound capital position and reserves absorbed all the losses stemming from it. US Bancorp, Wells Fargo, BBT and PNC fall in this section.
The second category involves banks, which have diverse ratings spanning from ‘A’ to ‘BBB+’. UnionBanCal, Capital One, Comerica, Fifth-Third, KeyCorp, M&T Bank, and Huntington come under this group. According to Fitch, these banks have solid credit profiles, but certain bank-specific aspects keep these away from being on the top. For instance, relatively low earnings mar some companies having strong capital position and in some cases, low capital position offset the strong risk-adjusted earnings.
In the last category, banks having ‘BBB+’ to ‘BBB-‘ratings are included. Zions, SunTrust, and Regions’ belong to this group. As per Fitch, these banks lagged peers in terms of earnings and asset quality performance during the financial crisis, but of late have started displaying improving trends.
Earlier in October, Fitch had reiterated the long and short-term IDR of 12 Global Trading and Universal Bank (GTUB) peer group (formed last October and includes 13 major securities trading and universal banks). Moreover, excluding one bank, Fitch re-affirmed the respective outlook for all others.
The rating affirmation will prove beneficial to the already stressed financial sector. Further, this will reinforce investors’ confidence in the sector. Also, this might help the financial institutions to withstand another financial crisis.