We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Truist (TFC) Ratings Cut by Moody's on Business Divestiture
Read MoreHide Full Article
Truist Financial’s (TFC - Free Report) ratings, which were under review, have been downgraded by Moody's. The rating agency has lowered all the long-term ratings and assessments for TFC. The company’s long-term senior unsecured debt has been downgraded to Baa1 from A3.
Notably, the outlook for Truist’s senior unsecured debt rating and long-term issuer rating have been changed to stable.
Moody’s had placed Truist’s ratings and outlook under review for downgrade on Feb 20, 2024, following the announcement of the latter signing a deal to divest the remaining 80% stake in its insurance subsidiary – Truist Insurance Holdings (“TIH").
The core rationale behind Moody's decision to downgrade ratings is Truist's strategic moves, particularly the completion of the sale of its remaining 80% interest in TIH and subsequent balance sheet repositioning. While these steps have bolstered the bank's capitalization and liquidity profile, they have also exposed it to certain vulnerabilities.
One major aspect of the downgrade is the impact on Truist's revenue diversification. With the sale of TIH, the company becomes less diversified, with increased reliance on net interest income. This is likely to heighten earnings volatility.
The rating agency noted that TIH had been a stable performer, contributing to Truist's creditworthiness. However, its absence now leaves a void in Truist's revenue streams, requiring a reassessment of the bank's long-term profitability prospects.
Moody's also highlighted concerns related to Truist's asset liability and interest rate risk management. The bank incurred substantial unrealized losses on its investment portfolio as the Federal Reserve raised the interest rates over the past two years, indicating weaknesses in risk management practices. While the company has taken steps to enhance its risk management framework, the rating agency emphasized that full integration of these improvements will take time, suggesting ongoing challenges in mitigating risk exposures effectively.
On a positive note, the sale of TIH has tangible benefits for Truist, particularly in terms of capitalization and liquidity. The influx of after-tax net cash proceeds totaling $10.1 billion has strengthened the bank's liquidity position, while the balance sheet repositioning enhances the quality of its investment portfolio. These factors contribute to an improved Common Equity Tier 1 (CET1) ratio, positioning Truist favorably compared to certain peers.
Nonetheless, regulatory changes that loom on the horizon are expected to adversely impact Truist's capital requirements and risk-weighted assets. Proposed rules would compel large U.S. banks like Truist to include accumulated other comprehensive income in regulatory capital. This will affect its CET1 ratio.
While Truist recorded a pro-forma increase in its CET1 ratio as of Mar 31, 2024, following the divestiture of TIH and balance sheet restructuring, regulatory developments remain a primary area of uncertainty for the bank's future capital adequacy.
In the near term, Truist faces the dual challenge of capital optimization and revenue diversification. Enhancing risk management practices and adapting to regulatory changes will be critical as the company seeks to navigate evolving market dynamics. Further, exploring avenues for revenue generation beyond traditional streams will be essential for sustaining long-term profitability and resilience.
Over the past year, shares of Truist have gained 45.7%, outperforming the industry’s rally of 44.2%.
New York Community Bancorp, Inc.'s (NYCB - Free Report) Long-Term Issuer Default Ratings were downgraded to BB from BB+ by Fitch Ratings. Nonetheless, the rating outlook remains stable.
The primary reasons behind the downgrade were NYCB's weak earnings and profitability, along with execution risk associated with its restructuring plan.
JPMorgan’s (JPM - Free Report) outlook was upgraded to positive from stable by S&P Global Ratings. However, the A-/A-2 ratings of the holding company and the A+/A-1 operating company ratings have been kept unchanged.
The strength of JPM’s extensive lending-to-trading business, which has outperformed its peers, is the primary reason behind the outlook upgrade.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Truist (TFC) Ratings Cut by Moody's on Business Divestiture
Truist Financial’s (TFC - Free Report) ratings, which were under review, have been downgraded by Moody's. The rating agency has lowered all the long-term ratings and assessments for TFC. The company’s long-term senior unsecured debt has been downgraded to Baa1 from A3.
Notably, the outlook for Truist’s senior unsecured debt rating and long-term issuer rating have been changed to stable.
Moody’s had placed Truist’s ratings and outlook under review for downgrade on Feb 20, 2024, following the announcement of the latter signing a deal to divest the remaining 80% stake in its insurance subsidiary – Truist Insurance Holdings (“TIH").
The core rationale behind Moody's decision to downgrade ratings is Truist's strategic moves, particularly the completion of the sale of its remaining 80% interest in TIH and subsequent balance sheet repositioning. While these steps have bolstered the bank's capitalization and liquidity profile, they have also exposed it to certain vulnerabilities.
One major aspect of the downgrade is the impact on Truist's revenue diversification. With the sale of TIH, the company becomes less diversified, with increased reliance on net interest income. This is likely to heighten earnings volatility.
The rating agency noted that TIH had been a stable performer, contributing to Truist's creditworthiness. However, its absence now leaves a void in Truist's revenue streams, requiring a reassessment of the bank's long-term profitability prospects.
Moody's also highlighted concerns related to Truist's asset liability and interest rate risk management. The bank incurred substantial unrealized losses on its investment portfolio as the Federal Reserve raised the interest rates over the past two years, indicating weaknesses in risk management practices. While the company has taken steps to enhance its risk management framework, the rating agency emphasized that full integration of these improvements will take time, suggesting ongoing challenges in mitigating risk exposures effectively.
On a positive note, the sale of TIH has tangible benefits for Truist, particularly in terms of capitalization and liquidity. The influx of after-tax net cash proceeds totaling $10.1 billion has strengthened the bank's liquidity position, while the balance sheet repositioning enhances the quality of its investment portfolio. These factors contribute to an improved Common Equity Tier 1 (CET1) ratio, positioning Truist favorably compared to certain peers.
Nonetheless, regulatory changes that loom on the horizon are expected to adversely impact Truist's capital requirements and risk-weighted assets. Proposed rules would compel large U.S. banks like Truist to include accumulated other comprehensive income in regulatory capital. This will affect its CET1 ratio.
While Truist recorded a pro-forma increase in its CET1 ratio as of Mar 31, 2024, following the divestiture of TIH and balance sheet restructuring, regulatory developments remain a primary area of uncertainty for the bank's future capital adequacy.
In the near term, Truist faces the dual challenge of capital optimization and revenue diversification. Enhancing risk management practices and adapting to regulatory changes will be critical as the company seeks to navigate evolving market dynamics. Further, exploring avenues for revenue generation beyond traditional streams will be essential for sustaining long-term profitability and resilience.
Over the past year, shares of Truist have gained 45.7%, outperforming the industry’s rally of 44.2%.
Image Source: Zacks Investment Research
Currently, TFC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Rating Actions on Other Banks
New York Community Bancorp, Inc.'s (NYCB - Free Report) Long-Term Issuer Default Ratings were downgraded to BB from BB+ by Fitch Ratings. Nonetheless, the rating outlook remains stable.
The primary reasons behind the downgrade were NYCB's weak earnings and profitability, along with execution risk associated with its restructuring plan.
JPMorgan’s (JPM - Free Report) outlook was upgraded to positive from stable by S&P Global Ratings. However, the A-/A-2 ratings of the holding company and the A+/A-1 operating company ratings have been kept unchanged.
The strength of JPM’s extensive lending-to-trading business, which has outperformed its peers, is the primary reason behind the outlook upgrade.