Aug. 28, 2009 (Business Wire) -- Fitch Ratings has downgraded Astoria Financial Corp.'s (AF) long-term and short-term Issuer Default Ratings (IDR) to 'BBB-' from 'BBB+' and 'F3' from 'F2', respectively. AF's banking subsidiary Astoria Federal Savings and Loan's (AFSL) long-term IDR was downgraded to 'BBB' from 'BBB+'. A full list of ratings and Fitch actions follows this release. The Outlook is Negative.
Today's actions reflect Fitch's belief that AF will continue to suffer continued deterioration of asset quality over the next several quarters, aggressive capital management and additional pressure on operating performance. In Fitch's view, rising unemployment and continued pressure on residential housing will continue to negatively affect asset quality metrics and require further provisioning. Additionally, the company's Alt-A portfolio, primarily stated income verified asset mortgages, has had a notable increase in delinquency over the last six months. This will in turn place pressure on operating performance and offset an expansion of the net interest margin that has occurred over the several quarters. Overall profitability has been anemic due to elevated provision and FDIC-related expenses, which has hampered AF's ability to augment capital. Further compounding capital generation is the continued payout of dividends in excess of net income, even with the 50% reduction of the dividend during the first quarter of 2009. Fitch believes the inherent risk in the loan portfolio has increased without a commensurate increase to the capital base. AF's asset quality has performed relatively well when compared to peers due to strong underwriting. Consequently, while peers have had significant loan losses placing pressure on performance, AF has remained profitable through a turbulent operating environment.
The two-notch downgrade of AF reflects Fitch's concerns regarding management of liquidity at the holding company needed to service its senior unsecured and junior subordinated securities. In Fitch's estimation, at Dec. 31, 2008, marketable assets available for debt service would only allow for an approximate one-year of payments on the aforementioned debt. AF is currently receiving quarterly approvals from its primary regulator to advance dividends to the holding company from the bank. There is no assurance this approval will continue, and if this source of cash were to be stopped, Fitch views the risk of deferral of the trust preferred securities as elevated.
The Negative Outlook reflects Fitch's view on the potential rating implications if profitability does not allow for capital generation, at a time when the risk of losses from the loan portfolio has increased. Additionally, Fitch is concerned about the management of liquidity at the holding company and the implications it may have on debt service of its obligations, which in turn increases deferral risk of the trust preferred securities.
Fitch has taken the following rating actions:
--Long-Term IDR downgraded to 'BBB-' from 'BBB+';
--Short-Term IDR downgraded to 'F3' from 'F2';
--Individual Rating downgraded to 'C/D' from 'B/C';
--Senior unsecured downgraded to 'BBB-' from 'BBB+';
--Support affirmed at '5';
--Support Floor affirmed at 'NF';
--Outlook Negative.
Astoria Federal Savings & Loan:
--Long-Term IDR downgraded to 'BBB' from 'BBB+';
--Long-term Deposits downgraded to 'BBB+' from 'A-';
--Short-Term IDR affirmed at 'F2';
--Short-Term Deposits affirmed at 'F2';
--Individual Rating downgraded to 'C' from 'B/C';
--Support affirmed at '5';
--Support Floor affirmed at 'NF';
--Outlook Negative.
Astoria Capital Trust I
--Preferred stock downgraded to 'BB-' from 'BBB'.
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.
