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Fitch Ratings has reiterated its credit ratings and outlook on Webster Financial Corp. (WBS - Snapshot Report). The rating agency affirmed the company’s long term Issuer Default Ratings (IDR) at ‘BBB’ and short term IDR at ‘F2’. At the same time, the agency has retained the company’s outlook at ‘Stable’.

Fitch stated that Webster’s robust asset quality and profitability trends were in line with the agency’s expectations. Further, in the third quarter of 2012, the company’s asset quality witnessed improving trends with almost all the credit metrics including nonperforming assets, allowance for loan losses and net charge-offs declining on a year-over-year basis. Yet, Fitch remains concerned about higher levels of troubled debt restructurings (TDRs), though they have performed comparatively better than those of Webster’s peers.

Moreover, Fitch stated Webster’s profitability and capital ratios are relatively at par with the similarly rated peers and are also within the company’s historical range. However, the company’s capitalization could be an impediment for positive ratings action. Nonetheless, given the augmentation in certain categories of loan portfolios, this risk would be slightly mitigated.

Additionally, Fitch anticipates continued low rate environment to pressurize Webster’s net interest margin (NIM) in the near to mid term. Over the last several quarters, NIM has been exhibiting a declining trend. In the third quarter, it was 3.28%, waning 21 basis points (bps) from the year-ago quarter and 4 bps from the prior quarter. However, once the rates rise, the company’s earnings will benefit from it. Hence, till then, Fitch expects Webster’s earnings to remain within its historical range.

Further, given the earnings headwinds in the subsequent quarters and lower capital levels compared with the peers, Fitch stated that Webster’s IDRs have limited upside. Nevertheless, according to Fitch, Webster’s continuously improving credit quality trends, manageable credit expenses and stable capital ratios justify its ‘Stable’ outlook.

Late last month, Fitch had affirmed its IDRs on 14 regional banks, following a thorough review of the peer group. The banks comprised BB&T Corporation (BBT - Analyst Report), Capital One Finance Corp. (COF - Analyst Report), Comerica Incorporated (CMA - Analyst Report), Fifth Third Bancorp (FITB - Analyst Report) and KeyCorp (KEY - Analyst Report), among others.

Currently, Webster retains a Zacks #3 Rank, which translates into a short-term Hold rating. We believe that the rating affirmation will prove beneficial to the company’s financials. Further, this will reinforce investors’ confidence in the company, which might lead to positive estimate revisions. This, in turn, could cause an improvement in the Zacks Rank.

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