Aug. 24, 2009 (Business Wire) -- Fitch Ratings has downgraded the ratings for The South Financial Group, Inc. (TSFG) and its principal bank subsidiary, Carolina First Bank, including the long-term Issuer Default Rating (IDR) to 'B+' from 'BB+'. The Individual Rating for both entities is lowered to 'D' from 'C/D'. The Outlook is Negative. A complete list of ratings is provided at the end of this release.
Fitch's downgrade of TSFG's ratings reflects the company's continued high net credit losses, and elevated and increasing level of problem assets. Many parts of its Southeast U.S. footprint remain under economic stress. The company has been particularly hard hit in its residential construction and development, land, and mortgage portfolios, particularly in Florida and the coastal areas of the Carolinas. High provisioning needs continue to produce quarterly net losses and erode capital. Fitch believes that loan losses will remain elevated during 2009 and into 2010. Additionally, TSFG's pre-provision operating earnings continue to suffer from a relatively weak net interest margin and low contribution from fee income.
Fitch notes that TSFG has taken steps to bolster capital, including the recent issuance of common equity and the sale of non-core assets and businesses. It has preferred stock exchange offers pending that would bolster Tier I common equity further. Fitch believes that even if these exchanges proceed as TSFG anticipates, the company will need to raise additional common equity in 2010 given Fitch's asset quality outlook.
TSFG's ratings reflect the level of asset quality and earnings pressure on the company. The Negative Outlook conveys that if the pending preferred stock exchanges are not successful, Fitch believes the institution would continue to operate, although the risk of deferral on preferred stock dividends would be significantly heightened. The Negative Outlook also incorporates the possibility that asset quality trends and general market conditions may worsen beyond Fitch's expectations.
The South Financial Group, Inc. is a $12.6 billion bank holding company headquartered in Greenville, SC, that operates a branch network of 177 offices. It operates as Carolina First Bank in North Carolina and South Carolina and under the Mercantile Bank name in Florida.
Fitch has taken the following rating actions, with a Negative Outlook:
South Financial Group, Inc. (The)
--Long-term IDR downgraded to 'B+' from 'BB+';
--Preferred stock to 'CCC' from 'B+';
--Short-term IDR affirmed at 'B';
--Individual downgraded to 'D' from 'C/D';
--Support affirmed at '5';
--Support floor affirmed at 'NF'.
Carolina First Bank
--Long-term IDR downgraded to 'B+' from 'BB+';
--Long-term deposits downgraded to 'BB-' from 'BBB-';
--Short-term IDR affirmed at 'B';
--Short-term deposits downgraded to 'B' from 'F3';
--Individual downgraded to 'D' from 'C/D';
--Support affirmed at '5';
--Support floor affirmed at 'NF'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
