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BankUnited (BKU) Ratings Upgraded by Moody's, Outlook Stable

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BankUnited, Inc. (BKU - Free Report) and its subsidiary BankUnited NA’s ratings have been upgraded by Moody’s Investors Service, the rating arm of Moody’s Corporation (MCO - Free Report) . The outlook for the company remains stable.

BankUnited’s long-term deposit rating has been raised from Baa1 to A3 and standalone Baseline Credit Assessment (BCA) now stand at baa2, upgraded from baa3. Further, its issuer rating also witnessed a progress from Ba1 and is now Baa3. Also, the subsidiary’s senior debt rating of Baa3 has been upgraded from Ba1.

Additionally, BankUnited’s long-term counterparty risk ratings and long-term counterparty risk assessments of Baa3 and Baa2(cr) have been upgraded to Baa2 and Baa1(cr), respectively.

Reasons Behind Rating Upgrade

Moody’s has taken into consideration BankUnited’s efforts to transform its business model into a commercial bank, which reflects solid financials. The rating agency believes that this transformation will lead to a foreseeable level of profits, even post mid-2019, when the loss-sharing agreement with the FDIC expires. Post the expiration of the agreement, Moody’s feels that the profitability will fall marginally. However, Moody’s has already taken this into consideration while assigning the ratings.

Further, in a year, BankUnited’s loan portfolio witnessed growth of 11% for the period, ending Mar 31, 2018. It was another favorable factor that led to the rating upgrade. Moreover, the bank’s capital profile is expected to remain robust, even after the decline in capital ratios, due to the expansion of its franchise.

Additionally, its rapid commercial real estate (CRE) loan growth has also led to a CRE concentration at 2.7 times BankUnited's tangible common equity base as of Mar 31, 2018, down from 3.4 times, which was recorded at the end of 2016.

Nevertheless, the rating agency feels that the bank’s funding profile is weaker than other regional US banks.

What Can Drive Ratings Up or Down?

A further upgrade in ratings is possible if the company’s funding profile improves and funding costs witness a decline. Growth in the commercial banking franchise and robust asset quality can also result in an upgrade.

A rating downgrade could occur if the company’s asset quality or profitability deteriorated. Further, ratings can also be downgraded if BankUnited’s concentration risk prominently rises.

In the past year, BankUnited’s shares have rallied 25.4%, outperforming the industry’s growth of 8.8%.

Currently, the stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks to Consider

M&T Bank Corporation (MTB - Free Report) carries a Zacks Rank of 2. Its earnings estimates for 2018 have been revised upward marginally over the last 60 days. Also, its shares have gained 4% in the past year.

Cullen/Frost Bankers, Inc. (CFR - Free Report) carries a Zacks Rank of 2. In the last 60 days, the Zacks Consensus Estimate for the company has increased 0.7% for the current year. Its share price has gained 16.3% in the past year.

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