News Column

Fitch Affirms East West Bancorp's Ratings at 'BBB/F2' Following Mid-Tier Regional Bank Peer Review

February 5, 2014

CHICAGO --(BUSINESS WIRE)-- Fitch Ratings has affirmed East West Bancorp's (EWBC) ratings at 'BBB'/'F2'. The Rating Outlook remains Stable. The affirmation reflects solid earnings, improved asset quality, and reduction of the construction portfolio. These strengths are balanced against rapid loan growth, and a relatively higher risk investment portfolio from a credit perspective. A full list of rating actions follows at the end of this press release. KEY RATING DRIVERS - IDRS, VRs, AND SENIOR DEBT EWBC has a solid franchise, which is focused on serving Asian American communities. The niche strategy gives the company good pricing power on its consumer lending products. Deposit pricing and the level of non-interest bearing deposits are relatively weaker than many of its mid-tier regional banking peers. However, Fitch believes EWBC's total funding costs will improve as legacy term repurchase agreements expire over the medium to longer term. Asset Quality trends continue to improve for the company. Fitch believes reduced construction and development exposure is primarily aiding the improvement in problem asset and NCOs. EWBC's construction and development loan (C&LD) portfolio, which has declined by over 70% since its peak, was the largest driver of credit losses through the cycle. As such, Fitch views the reduced exposure to higher risk C&LD loans favorably. Despite improving asset quality, Fitch remains cautious on EWBC's commercial loan growth. The portfolio has grown significantly in the past two years. Although not currently expected, material deterioration in the commercial loan portfolio could warrant a review of EWBC's ratings. Earnings are a rating strength for EWBC. Earnings rank in the top quartile of the mid-tier bank peer group. While Fitch expects return on average assets (ROA) to decline in the near term due to the impact of yield accretion, Fitch believes EWBC will continue to rank in the top quartile of the peer group over the medium term due to EWBC's solid franchise strength. RATING SENSITIVITIES - IDRS, VRs, AND SENIOR DEBT Positive rating momentum could occur with a moderation in loan growth, combined with the maintenance of solid asset quality, above average earnings, and appropriate capital levels. An upgrade under this scenario would assume the risk appetite remains relatively unchanged, and EWBC does not veer from its historical lending competencies. Conversely, a material increase in leveraged loans or signs of deterioration in the commercial loan book could limit positive ratings momentum, and significant enough deterioration could pressure the ratings. Additionally, a material increase in reliance on wholesale funding could also adversely impact ratings. KEY RATING DRIVERS - HYBRID SECURITIES EWBC's trust preferred issuances are notched below its VR to reflect loss severity and an assessment of increment non-performance risk. RATING SENSITIVITIES - HYBRID SECURITIES EWBC's trust preferred stock ratings are sensitive to changes in EWBC's VR . Rating sensitivities for the VR are listed above. SUBSIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS East West Bank is a wholly owned subsidiary of EWBC. East West Bank's ratings are aligned with EWBC reflecting Fitch's view that the bank subsidiary is core to the franchise. SUBSIDIARY AND AFFILIATED COMPANY RATING SENSITIVITIES East West Bank's ratings are sensitive to changes to EWBC's VR or any changes to Fitch's view of structural subordination between bank subsidiary and holding company. Rating sensitivities for the VR are listed above. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR EWBC's Support Rating and Support Rating Floor of '5' and 'NF' reflect Fitch's view that the company is unlikely to procure extraordinary support should such support be needed. KEY RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR EWBS' Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need. Fitch reviewed EWBC's ratings as part of the mid-tier regional bank review. The 19 banks in today's review include: Associated Banc-Corp (ASBC), BOK Financial Corp (BOKF), Cathay General Bancorp (CATY), City National Bancorp (CYN),Cullen/Frost Bankers, Inc (CFR), East West Bancorp, Inc. (EWBC), First Horizon National Corp (FHN), First National of Nebraska, Inc. (FNNI), First Niagara Financial Group, Inc. (FNFG), First Republic Bank (FRC), First Merit (FMER), Fulton Financial Corp (FULT), Hancock Holding Company (HBHC), People's United Financial, Inc. (PBCT), Synovus Financial Corp (SNV), TCF Financial Corp (TCB), UMB Financial Corporation (UMB), Webster Financial Corp (WBS), Wintrust (WTFC). 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-'. Additional information is available at ' www.fitchratings.com '. Applicable Criteria and Related Research : --2014 Outlook: U.S. Banks ( Nov. 21, 2013 ) --U.S. Banks: Liquidity and Deposit Funding ( Aug. 8, 2013 ) --U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) ( June 18, 2013 ) --U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? ( July 11, 2013 ) --Global Trading and Universal Banks - Periodic Review ( Dec. 12, 2013 ) --Fitch Fundamentals Index - U.S.; Index Trend Analysis 4Q13 ( Jan. 15, 2014 ) --Risk Radar Global - Q313 ( Sep 5, 2013 ) --Fitch Global Corporate Rating Activity - Third Quarter 2013 ( Dec. 5, 2013 ) --U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) ( Jan. 27, 2014 ) --Global Financial Institutions Rating Criteria ( Jan. 31, 2014 ) --Assessing and Rating Bank Subordinated and Hybrid Securities ( Jan. 31, 2014 ) Applicable Criteria and Related Research : 2014 Outlook: U.S. Banks http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723989 U.S. Banks: Liquidity and Deposit Funding http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196 U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875 U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712539 Global Trading and Universal Banks - Periodic Review http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726150 Fitch Fundamentals Index http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=729196 Risk Radar Global - Q313 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717023 Fitch Global Corporate Rating Activity - Third-Quarter 2013 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720480 U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732295 Global Financial Institutions Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397 Assessing and Rating Bank Subordinated and Hybrid Securities Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=819698 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' 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. Fitch Ratings Primary Analyst Julie Solar Senior Director +1-312-368-5472 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 or Secondary Analyst Jaymin Berg , CPA Director +212-908-0368 or Committee Chairperson Christopher Wolfe Managing Director +1-212-908-0771 or Media Relations: Brian Bertsch , New York , +1 212-908-0549 Email: brian.bertsch@fitchratings.com Source: Fitch Ratings


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Business Wire


Story Tools