January 23, 2017 / 8:49 PM / 3 years ago

Fitch Affirms East West Bancorp's IDRs at 'BBB/F2'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, January 23 (Fitch) Fitch Ratings has affirmed East West Bancorp, Inc.'s (EWBC) ratings at 'BBB/F2' reflecting its solid earnings profile, good asset quality, and a distinctive franchise. This is primarily offset by historically strong loan growth, which has not fully seasoned, and a regulatory agreement regarding BSA compliance. The Rating Outlook is Stable. The rating action follows a periodic review of the midtier regional banking group, which includes BankUnited Inc. (BKU), BOK Financial Corp. (BOKF), Cathay General Bancorp (CATY), East West Bancorp (EWBC), First Republic Bank (FRC), First Horizon National Corp. (FHN), First National of Nebraska Inc. (FNNI), Fulton Financial Corp. (FULT), Hilltop Holdings, Inc. (HTH), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), Trustmark Corp. (TRMK), UMB Financial Corp. (UMBF) and Wintrust Financial Corp. (WTFC). Company-specific rating rationales for the other banks are published separately, and for further discussion of the midtier regional bank sector in general, refer to the special report titled 'U.S. Banks: Midtier Regional Bank Periodic Review,' to be published shortly. KEY RATING DRIVERS IDRs and VRs EWBC's solid earnings profile is a primary ratings driver. The company's recent earnings continue to benefit from modest overhead expenses, good spread income, and low credit costs. EWBC has historically reported stronger earnings than peers, even during the financial crisis years (excluding 2008), albeit with a high reliance on spread income. Further, Fitch notes that over the past 10 quarters, EWBC has reported both stronger earnings than almost all of the peers, but also with less volatility over this time period. EWBC also appears the best positioned for a rising rate scenario with projected net interest income to increase the most in the midtier peer group. While interest rate risk simulation results are highly dependent on modeling assumptions including future interest rate increases and deposit betas, EWBC's asset profile suggests the company stands to reap ample benefits from rate increases in 2017. For example, at Sept. 30, 2016, EWBC calculates that 82% of its loans had maturities or repricing terms of less than one year. However, Fitch expects future interest rates increases will likely be gradual in nature. As such, much of the modelled earnings improvement may not be realized over the near term. EWBC's ratio of nonperforming assets (NPAs; inclusive of accruing TDRs) to loans and foreclosed real estate is amongst the lowest in the midtier peer group (excluding purchased credit impaired loans). More recently, NPA balances have remained well below peak levels, though there continues to be some growth in nonaccrual balances for C&I loans. Fitch also notes C&I charge-offs in the third quarter of 2016 (3Q16) were higher than the past several quarters and higher relative to other asset classes as well as peers. C&I nonaccruals could drive some prospective volatility in net charge-offs (NCOs). EWBC has demonstrated strong loan growth in C&I and CRE balances, far outpacing industry and peer averages over the past several years. In Fitch's view, this may suggest that EWBC may be increasing its risk appetite. However, C&I and CRE loan growth has slowed over the past 12 months, as compared to the prior year period, and the company has a much more balanced loan mix now than pre-crisis. EWBC's capital is considered adequate, with a Fitch Core Capital ratio of 10.8% and a CET1 ratio at 10.9% as of Sept. 30, 2016, slightly below the peer median. Capital ratios in general have been increasing modestly over the past 12 months, which Fitch views as prudent, especially given strong loan growth over the past several years. In 2017, Management plans to continue to grow EWBC's capital to be more in line with peers. EWBC pays a common stock dividend of $0.20 per share or $29 million quarterly, unchanged from the prior year. Since 2014, the company has not engaged in common stock repurchase activity and we do not expect any change prospectively, especially in light of management's intention to grow capital. EWBC is unique in that it is the only bank of its size to have a notable presence in China, and the only Asian-American focused bank with full service banking offices in the U.S. and China. EWBC's deposit base reflects the company's niche market focus on the Chinese-American community. Although these deposits have shown stability, they come at costs slightly higher than the midtier median, driven primarily by time deposit and money market offerings. Liquidity metrics relative to peers generally remain favourable as evidenced by a below peer-median loan-to-deposit ratio (87% vs. peer median 92%), a good level of non-interest bearing deposits to total deposits relative to peers (33% vs. peer median 29%), and modest use of wholesale funding sources relative to total liabilities (6% vs. peer median 12%). Fitch notes that holding company cash coverage of its obligations over four quarters is currently less than 1x. We believe the holding company will draw on ample bank dividend capacity to ensure at least 1x coverage by year-end 2018. Following a Written Agreement entered in late 2015 with the Federal Reserve Bank of San Francisco, the company continues to make progress with its action plan to remediate deficiencies in its BSA/AML compliance program. Fitch expects EWBC to fully remediate its Written Agreement over the near to intermediate term. HYBRID SECURITIES Hybrid capital issued by EWBC and its subsidiaries are all notched down from the VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles. Legacy Tier 1 securities are generally rated four notches below the VR, made up of two notches for high loss severity relative to average recoveries, and two further notches for non-performance risk, reflecting the fact that coupon omission is not fully discretionary. LONG- AND SHORT-TERM DEPOSIT RATINGS EWBC's uninsured deposit ratings at the subsidiary bank are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default. HOLDING COMPANY EWBC's IDR and VR are currently equalized with those of East West Bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Ratings are also currently equalized reflecting the very close correlation between holding company and subsidiary failure and default probabilities. SUPPORT RATING AND SUPPORT RATING FLOOR EWBC and East West Bank have a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, EWBC and East West Bank are not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support. RATING SENSITIVITIES IDRs and VRs Positive rating momentum is limited in the near term given the bank's historically strong loan growth, which has not fully seasoned, and capital levels below midtier peers. Fitch notes the company's heightened C&I nonaccrual inflows and charge-offs during 2016 and will continue to assess C&I asset quality for signs of sustained deterioration in 2017. If loan growth does not consistently moderate or asset quality begins to show signs of sustained deterioration, particularly in newly originated commercial loans, negative credit action could occur. Fitch views there to be more negative rating pressure currently than upside potential. EWBC's ratings are also highly sensitive to its capital levels. Negative rating action could result if capital is managed down, especially within the context of outsize loan growth. Superior credit performance of recently originated C&I and CRE loans during the next asset quality downturn could provide support for positive ratings momentum. At the same time, Fitch would expect a superior earnings profile and capital levels above midtier peers. In general, a higher level of non-interest income could also provide support for positive ratings momentum. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings for EWBC and its operating companies' subordinated debt and preferred stock are sensitive to any change to EWBC's VR. The securities' ratings are also sensitive to a change in their notching, which could arise if Fitch changes its assessment of the probability of their non-performance relative to the risk captured in the issuers' VRs. This may reflect a change in capital management in the group or an unexpected shift in regulatory buffer requirements, for example. LONG- AND SHORT-TERM DEPOSIT RATINGS The long-and short-term deposit ratings are sensitive to any change to EWBC's Long-and Short-Term IDR. HOLDING COMPANY Should EWBC begin to exhibit signs of weakness, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. Further, if holding company cash coverage of its obligations over four quarters remains less than 1x by year-end 2018 and/or gradual bank dividends are not observed on a go-forward basis, Fitch would likely notch the holding company IDR and VR down from the ratings of East West Bank. SUPPORT RATING AND SUPPORT RATING FLOOR Since EWBC's and East West Bank's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future. Fitch has affirmed the following ratings: East West Bancorp, Inc. --Long-Term IDR at 'BBB'; Outlook Stable; --Short-Term IDR at 'F2'; --Viability Rating at 'bbb'; --Support at '5'; --Support Floor at 'NF'. East West Bank --Long-Term IDR at 'BBB'; Outlook Stable; --Long-term deposits at 'BBB+'; --Short-Term IDR at 'F2'; --Short-term deposits at 'F2'; --Viability Rating at 'bbb'; --Support at '5'; --Support Floor at 'NF'. East West Capital Statutory Trust III, East West Capital Trust IV, V, VI, VII, VIII & IX --Trust preferred securities at 'BB-'. Contact: Primary Analyst Stefan Kahandaliyanage, CFA Associate Director +1-646-582-4918 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Julie Solar Senior Director +1-312-368-5472 Committee Chairperson Christopher Wolfe Managing Director +1-212-908-0771 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1017938 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below