Nov. 9, 2009 (Business Wire) -- Fitch Ratings has downgraded the long-term Issuer Default Rating (IDR) of Regions Financial (RF) and its subsidiary to 'BBB+' from 'A-'. The Rating Outlook is Negative. A complete list of all ratings follows at the end of this release.
The downgrade of RF's ratings reflects the continued deterioration in credit quality, and expectations of rising credit costs. While Fitch expected the company to endure increased credit stress in its homebuilder and Florida home equity portfolios, as well as in its sizeable commercial real estate (CRE) book, the recent level of deterioration has exceeded Fitch's original projections. Nonperforming asset additions were considerable at $1.8 billion and $1.7 billion in second quarter-2009 (2Q'09) and 3Q'09, respectively. Fitch remains concerned with RF's CRE exposure as market fundamentals continue to weaken, and expects that RF will report high level of provision expenses well into 2010. RF's exposure to CRE loans, including construction loans, comprises 39% of total loans, which represents a relatively larger exposure than similarly rated peers. Elevated credit costs will likely remain a considerable drag on earnings for the foreseeable future. Also underlying the rating action, RF's pre-provision net revenues are weaker on a relative basis to similarly rated peers.
Somewhat offsetting the weak asset quality profile, RF's recently augmented capital base provides support for the ratings at their new level. RF raised $2.5 billion in capital related to the results of the Supervisory Capital Assessment Program. In addition, both RF and Regions Bank continue to maintain a significant amount of borrowing capacity, and a large level of liquid assets. The current ratings of RF and its subsidiaries also incorporate their solid market position in the southeastern U.S. Fitch currently views RF's capital and liquidity resources as sufficient to withstand anticipated stress within the context of expectations for an investment grade company. However, until trends in asset quality establish some evidence of bottoming, further rating actions remain possible and the Rating Outlook remains Negative.
RF is a $140 billion financial holding company headquartered in Birmingham, Alabama. RF operates almost 2,000 branches in 16 states across the South, Midwest and Texas. RF provides traditional commercial, retail and mortgage banking services, as well as investment banking, asset management, trust, mutual funds, and securities brokerage services through its wholly-owned subsidiary, Morgan Keegan.
