BB&T's Ratings Lowered by Moody's - Analyst Blog

On Monday, BB&T Corp.'s (BBT) senior debt and long-term deposit ratings were downgraded by Moody's Investors Service, the ratings arm of Moody's Corp. (MCO), as a result of concerns related to the company's weaker credit profile.

Moody's cut BB&T's long-term deposit rating to “A1” from “Aa3” and senior debt rating to “A2” from “A1”. The ratings agency also lowered the company's banking subsidiary's unsupported bank financial strength rating to “B-” from “B”.

Moody's lowered the ratings in spite of BB&T's sustained profitability and consolidating capital ratios over the last three quarters. According to the ratings agency, the company faces a number of challenges – shift from real estate to other assets, more reliance on the wholesale funding and credit costs from commercial real estate portfolio – reflecting weaker credit quality.

Though BB&T's growth in several portfolios have remained above average compared with many other regional banks, Moody's observed that simultaneous fast paced growth in multiple assets can be very difficult to manage for the company and the bondholders are, thus, exposed to incremental risk.

However, Moody's have confirmed its short-term ratings for BB&T and its subsidiary at “Prime-1”, observing the outlook as stable. Moody's also commented that BB&T remains a well-managed company by reporting positive results through the financial crisis.

On December 14, Fitch Ratings affirmed the long-term and short-term issuer debt ratings (IDRs) of BB&T at “A+” and “F1”, respectively, reflecting the company's strong fundamentals. Fitch also revised its outlook to “Stable” from “Negative”, expecting the company to use its position in the banking sector to pursue acquisitions as the industry consolidates.

Though credit quality remains a major concern for the company, BB&T currently retains a Zacks #3 Rank, which translates into a short-term “Hold” rating. BB&T's peers SunTrust Banks Inc. (STI) and State Street Corp. (STT) also share the same rank.

 
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