Which States are in the Worst Shape (FDIC)

FDIC State Profiles are a quarterly data sheet summation of banking and economic conditions in each state.

http://www.fdic.gov/bank/analytical/stateprofile/index.html

How Healthy are the US Banks? (Zacks)

Analyst Interviews: U.S. Banks Stock Update

By Zacks Investment Research on May 19, 2010

Although a major recovery in the asset markets has been witnessed in recent quarters, the outlook for the U.S. banking industry still remains in question due to several negatives, including asset-quality troubles, drawbacks of new regulations and the continuation of both residential and commercial real estate loan defaults.

After enduring extraordinary shocks in 2008, the U.S. banks entered an exceptional state of turmoil in 2009. Starting as a credit issue in the subprime segment of the mortgage market, the situation affected about the entire financial services industry, in all corners of the globe. In other words, the financial crisis ultimately morphed into a massive economic crisis, which has had major ramifications across the whole world.

Although the banking industry is dealing with liquidity and confidence challenges in 2010, it is now comparatively stable, with financial support from the U.S. government. The government had taken several steps, including programs offering capital injections and debt guarantees, to stabilize the financial system.

We believe that the worst of the credit crisis is now behind us. After more than a year of initiating the $700 billion Troubled Asset Relief Program (TARP), a lot has improved with respect to the economic crisis.

But the banking system is not yet out of the woods, as there are persistent problems that need to be addressed by the government before shifting the strategy to growth. We believe that the U.S. economy will regain its growth momentum once these issues are resolved.

While the bigger banks benefited greatly from the various programs launched by the government, many smaller banks are still in a very weak financial state, and the Federal Deposit Insurance Corporation’s (FDIC) list of problem banks continues to grow.

Bank Failures Continue

Despite the government’s strong efforts, we continue to see bank failures. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to take their toll on small banks. As the industry tolerates bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures.

Furthermore, government efforts have not succeeded in restoring the lending activity at the banks. Lower lending will continue to hurt margins and the overall economy, though the low interest rate environment should be beneficial to banks with a liability-sensitive balance sheet.

Out of the $247 billion given to the banks, more than half has come back from the healthy banks who have repaid their TARP funds in full. Banks have also paid about $11 billion in interest and dividends. Also, taxpayers have received decent returns on many of its financial-sector investments. Repayments under the TARP have generated a 17% annualized return from stock-warrant repurchases and $12 billion in dividend payments from dozens of banks.

Many of the major banks that have already repaid the bailout money include JPMorgan Chase (JPM: 39.56 +0.54 +1.38%), Goldman Sachs (GS: 138.90 +1.54 +1.12%), Morgan Stanley (MS: 26.98 +0.25 +0.94%), BB&T (BBT: 32.44 -0.10 -0.31%), US Bancorp (USB: 24.37 +0.01 +0.04%), Bank of America (BAC: 16.2894 +0.3394 +2.13%), Wells Fargo (WFC: 30.17 -0.42 -1.37%) and Citigroup (C: 3.82 +0.09 +2.41%).

Following the U.S. Treasury’s appeal to the world banking system to maintain stronger capital and liquidity standards by the end of 2010 to prevent a re-run of the global financial crisis, 15 large banks that control the majority of derivative trading worldwide have committed themselves to maintaining greater transparency in the $600 trillion market, which needs stricter oversight in the interest of the global financial system.

Moreover, in mid-January 2010, the Obama Administration proposed a tax on about 50 of the nation’s largest financial firms in order to recover the losses incurred by the government on its $700 billion bailout program. On approval of Congress, the tax, which the White House calls a “financial crisis responsibility fee,” would force the banks to reportedly pay the federal government about $90 billion over 10 years.

Targeting banks to recover the shortfall in bailout money can be considered justified, as they are the major beneficiaries of the taxpayers’ largesse. Most of the bailout loan was provided to financial institutions, as they form the backbone of the economy and were the primary victims of the crisis.

If the economic recovery tails off, high-risk loan defaults could re-emerge. About $500 billion in commercial real estate loans would be due annually over the next few years.

Above all, there are lingering concerns related to the banking industry as well as the economy. Continued asset-quality troubles are expected to force many banks to record substantial additional provisions at least through the end of 2010. This will be a drag on the profitability of many banks for extended periods, which will further stretch their capital levels.

While the economy is in a recovery phase, a lot remains to be done. The Treasury continues to hold huge direct investments in institutions like American International Group (AIG: 37.4205 -0.3595 -0.95%), Fannie Mae (FNM: 0.9394 -0.0406 -4.14%) and Freddie Mac (FRE: 1.265 -0.085 -6.30%).

Additionally, rating agency Standard & Poor’s said in March 2010 that it is maintaining its negative outlook for the U.S. banking industry based on FDIC’s industry financial performance data as of the end of 2009. The agency expects credit losses in the loan books of banks to be on the upside. Further, the agency warned that the pressure on ratings has not yet fully eased.

In conclusion, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans. Also, as a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions at least in the near term, affecting their profitability. We think that the financial crisis is far from over, and it will be awhile before we can write the end to this crisis story.

OPPORTUNITIES

The Treasury’s requirement of focusing on banking institutions towards higher-quality capital will help banks absorb big losses. Though this would somewhat limit the profitability of banks, a proper implementation would bring stability to the overall sector and hopefully address bank failures.

Specific banks that we like with a Zacks #1 Rank (Strong Buy) include Central Valley Community Bancorp (CVCY: 6.21 -0.09 -1.43%), Financial Institutions Inc. (FISI: 17.57 -0.08 -0.45%), S&T Bancorp Inc. (STBA: 22.56 -0.07 -0.31%), Bank of the Ozarks, Inc. (OZRK: 37.16 +0.25 +0.68%), First Community Bancshares, Inc. (NASDAQ:FCBC), Republic Bancorp Inc. (NASDAQ:RBCAA) and Old National Bancorp. (NYSE:ONB).

There are currently a number of stocks in the U.S. banking universe with a Zacks #2 Rank (Buy) including Mainsource Financial Group (NASDAQ:MSFG), Bancorp Rhode Island, Inc. (NASDAQ:BARI), MBT Financial Corp. (NASDAQ:MBTF), Mercantile Bank Corp. (NASDAQ:MBWM), MidWest One Financial Group, Inc. (NASDAQ:MOFG), Tower Financial Corporation (NASDAQ:TOFC), BancFirst Corporation (NASDAQ:BANF), Southwest Bancorp Inc. (NASDAQ:OKSB), Viewpoint Financial Group (NASDAQ:VPFG), Center Financial Corporation (NASDAQ:CLFC), North Valley Bancorp (NASDAQ:NOVB), Summit State Bank (NASDAQ:SSBI), Washington Banking Co. (NASDAQ:WBCO), Washington Trust Bancorp Inc. (NASDAQ:WASH), Lakeland Bancorp Inc. (NASDAQ:LBAI), Fidelity Southern Corporation (NASDAQ:LION) and Cardinal Financial Corp. (NASDAQ:CFNL).

We favor Commerce Bancshares Inc. (NASDAQ:CBSH) in this space since this company is one of the few names that did not report losses even during the current financial crisis. We believe that Commerce is one of the best-capitalized banks in the industry and will generate positive earnings throughout the credit cycle. While the bank had a decent growth in deposits in the most recent quarter, trends in its credit metrics were negative.

WEAKNESSES

The financial system is going through massive de-leveraging, and banks in particular have lowered leverage. The implication for banks is that the profitability metrics (like returns on equity and return on assets) will be lower than in recent years.

Furthermore, the current crisis has dramatically accelerated the consolidation trend in the industry. As a result, failure of a large financial institution will be a major concern in the upcoming quarters as weaker entities are being absorbed by the larger ones.

We think banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (NYSE:WL), KeyCorp (NYSE:KEY) and Zions Bancorp (NASDAQ:ZION), will remain under pressure.

Also, there are currently a number of stocks with a Zacks #5 Rank (Strong Sell) including Nara Bancorp Inc. (NASDAQ:NARA), Sierra Bancorp (NASDAQ:BSRR), Bryn Mawr Bank Corp. (NASDAQ:BMTC), Horizon Bancorp (NASDAQ:HBNC), Hudson Valley Holding Corp. (HUVL), Legacy Bancorp Inc. (NASDAQ:LEGC), VIST Financial Corp. (NASDAQ:VIST), Metrocorp Bancshares Inc. (NASDAQ:MCBI), Firstbank Corporation (NASDAQ:FBMI) and First Financial Bancorp (NASDAQ:FFBC).

The Bailout Banks - How are They Doing (Barrons)

Home > News & Commentary > This Week's Magazine > Features
MONDAY, MAY 11, 2009
FEATURE



After All That Stress, a Hugh Sigh of Relief
By ANDREW BARY

Now that the leading financial companies have passed their stress tests, investors are eager to buy bank stocks again. But which ones?

WALL STREET CHEERED THE GOVERNMENT'S EAGERLY awaited release last week of stress tests on 19 leading financial companies. Bank stocks gained 36%, extending a furious rally that has produced a 135% gain in the widely followed KBW Bank Index from its March lows.

Investors viewed the stress tests as showing that the major public financial companies can handle potential loan losses even in a draconian economic scenario with a manageable amount of new equity capital -- or no new capital at all. The big fear had been that banks would have to resort to capital raising that would massively dilute existing common shareholders.

Now institutional investors are eager to buy financial stocks. Morgan Stanley and Wells Fargo took advantage of growing institutional demand for new stock issues immediately after the stress-test results were released Thursday.

"A lot of money managers were underweighted in bank stocks relative to their benchmarks, and they've been panicked buyers because of what they see as an inflection point," says John McDonald, banking analyst at Sanford Bernstein.

There were broad gains through the sector. Fifth Third soared 120% to $8.49; PNC Financial rose 40% to $53.08; Bank of America gained 63% to $14.17, and Wells Fargo gained 44% to $28.18, helped by a plug from Warren Buffett, whose Berkshire Hathaway is Wells' largest holder.
Credit-card specialists American Express and Capital One were strong; AmEx shares rose 17% in the five sessions to $28.40, and Capital One gained 81% to $31.34. Because the stress tests took a rosier-than-anticipated view of potential credit-card losses, AmEx and Capital One weren't deemed to be capital-deficient. Many on Wall Street had expected that Capital One would be forced to boost capital.

Analysts saw room for further gains in the sector, but investors need to recognize that profits for this year are likely to be weak, and that 2010 earnings may continue to be depressed by elevated losses on commercial-real-estate mortgages and on home-equity and credit-card loans.
Investors are starting to look at what analysts call "normalized" earnings, or what banks can earn in a more benign economic and credit environment, which may not come until 2011. Banks are generally trading for four to nine times those normalized earnings.

Those potential profits, however, are subject to a host of variables, including the economy, interest rates, bank capital requirements and asset returns. McDonald favors some of the stronger banks, including JPMorgan Chase and PNC. JPMorgan, which rose 20% to $38.94 last week, now is valued at around seven times normalized earnings of more than $5 a share.

UNTIL RECENTLY, INVESTORS FEARFUL about earnings power tended to value banks on tangible book value, a conservative measure of shareholder equity. "Two weeks ago, the only thing people cared about was price to tangible book," says Barclays Capital analyst Jason Goldberg. "Now it's price to normalized earnings. Two weeks from now, who knows what it will be?"

Goldberg favors Bank of America, whose shares were up sharply despite needing to raise an industry-leading $33.9 billion. The stock trades for less than five times Goldberg's estimate of normalized earnings of $3.47 a share. Wall Street believes BofA can raise required capital without much dilution. The bank said it plans to sell 1.25 billion of common shares and convert some of its preferred stock to common -- and to sell some non-core assets, including the Columbia investment-management business.

Bank of America's $33 billion of preferred stock offers a high-yielding play on the bank's revival. The Series J 7.25% preferred trades around $15 (60% of face value of $25) for a yield of 12%. A former Merrill Lynch preferred issue, now called Series 5, trades for just $9, a fraction of its face value of $25. It has a yield of 11%. The BofA preferred dividends now look more secure, and the common yields next to nothing.
One of best plays for fans of beleaguered Citigroup is its $15 billion of preferred stock, which is due to be converted into common shares in an exchange offer to get under way soon. Citi's Series P preferred traded Friday around $22.50, enabling investors to buy Citi common at around $3 a share, considerably below Citi's close of $4.02. Each preferred share is likely to get 7.3 common shares. The opportunity exists because arbitrageurs can't close the currently wide spread between the preferred and common, with Citi shares virtually impossible to short.

Citi's trust preferred, which is senior to the regular preferred, also could be appealing. Some probably will be converted to common to meet the need for $5.5 billion of additional capital called for in the government stress tests. Citi's Series W trust preferred trades around 15, for a yield of 10%.

Citi's common is a dicier bet because the company's plan to convert more than $50 billion of preferred stock to common to boost key capital ratios could balloon its share count to 23 billion from the current five billion, permanently capping its earnings power. Moreover, the government likely will emerge as a major shareholder, leading to further potential meddling in Citi's business. With Citi's business mix shifting, it's tough to peg normalized earnings power, which could be anywhere from 50 cents to $1 a share.

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Citi Preferreds Exchange Terms (marketwatch)

Citi gives public preferred 5%-15% conversion haircut

By Marshall Eckblad
Last update: 7:52 a.m. EST March 3, 2009(This article was originally published Monday.)
NEW YORK (MarketWatch) -- Owners of publicly traded preferred stock in Citigroup Inc. will take a haircut of 5% to 15% when they exchange their shares into common stock of Citigroup at $3.25 per share.
The discount imposed on public preferred shareholders values the shares above the market price at which the preferred shares were trading before the deal was announced. Still, the pricing of the exchange, disclosed Monday, reveals that some preferred shareholders are more preferred than others in the deal.
Holders of the private preferred, who are getting a better price, include the U.S. and Singaporean governments, as well as Saudi Arabian Prince Alwaleed Bin Talal. Those investors will exchange preferred shares at par value, or the shares' original purchase price.
Citi had indicated Friday that, in contrast to owners of privately placed preferred stock, the public preferreds wouldn't get to exchange for Citi stock at their preferred shares' par value. Citi said only that the final price would be at a yet undisclosed "premium to market," and some investors anticipated facing a steeper discount to the shares' original purchase price.
Charles Lemonides, chief investment officer of ValueWorks LLC, a New York money manager, was worried Friday that Citigroup was going to shortchange retail investors, offering them inferior terms if they converted their preferred shares to common stock. But the details of the offering, which Citigroup disclosed in a regulatory filing Monday, turned out not to be so bad. The terms are "awfully close to fair and nothing to make hay over," Mr. Lemonides said.
A source who requested anonymity said the U.S. Treasury asked Citi to discount the value that public holders would receive in order to get the most out of its taxpayer-funded investment to bail out Citi.
A Citi spokesman couldn't promptly comment for this piece.
Shares in Citi were recently trading down 14% to $1.29. Citi preferred shares mostly fell Monday, reflecting the decline in the underlying common stock.
Citi will convert all the applicable preferred shares into common stock at $3.25 apiece. A person familiar with the matter said the price was calculated using a 20-day moving average price.
Citi said today in a filing with the Securities and Exchange Commission that holders of Series F, Series AA and Series E preferred stock - representing about $11.8 billion of the total - will be offered 95% of the liquidation value, while Series T holders - representing about $3.2 billion - will be offered 85%.
In treating its preferred shareholders differently, Citi, and even the U.S. Treasury, may be signaling that it will give better terms to private investors willing to take a large stake in recovering financial firms. At the same time, the relatively small haircuts may be an effort to show investors in preferred shares that they will not suffer dire consequences should the government purchase common stock in a firm.
Other reasons for treating the different shareholders differently may include ensuring the cooperation of the private holders, which would leave the government with a smaller stake.
The U.S. government struck a deal with Citigroup last week to convert a large portion of its preferred shares in Citi into common shares. The government will own about 36% of the New York bank.
On Friday, Citigroup said it would offer to exchange up to $52.5 billion of its existing preferred shares for common stock worth $3.25 each. In order to induce investors into exchanging preferred shares into common shares, the bank said it would suspend all dividends paid to common and preferred shares, with the exception of trust preferred securities.
-Contact: 201-938-5400

Fitch downgrades Royal Bank of Scotland

PRESS RELEASE: Fitch Downgrades RBS Group Individual Rating1-19-09 1:02 PM EST
Fitch Ratings-London-19 January 2009: Fitch Ratings has today downgraded The Royal Bank of Scotland Group plc's (RBS Group) Individual rating and that of its main operating subsidiaries The Royal Bank of Scotland plc (RBS plc) and National Westminster Bank plc (NatWest) to 'E' from 'B/C'. NatWest's Individual rating has been subsequently withdrawn. Today's action follows RBS Group's announcement that it expects to report an attributable loss of between GBP7bn and GBP8bn for 2008, and that it has reached an agreement to replace GBP5bn of preference shares held by the UK government with new ordinary shares.

The three companies' Long-term Issuer Default Ratings (IDR) and Short-term IDRs are affirmed at 'AA-' (AA minus) and 'F1+' respectively. RBS Group's Support rating has been upgraded to '1' from '5' and its Support Floor has been revised to 'AA-' (AA minus) from 'No Floor'. The Outlook for the IDRs remains Stable, reflecting an expectation of continued strong government support for RBS Group.

Fitch has also downgraded RBS Group's and RBS plc's Tier 1 preference shares to 'BB-' (BB minus) from 'A+', and upper tier 2 hybrid capital instruments issued by group companies to 'BB' from 'A+' and placed all of these securities on Rating Watch Negative.

A full list of ratings actions is available at the end of this release.The loss will arise largely as a result of additional credit market write-downs, lower income in the group's Global Banking & Markets division, impairment provisions relating to Lyondell Basell Industries and Bernard L Madoff Investment Securities LLC, and rising credit impairments across a broad range of portfolios and exposures. In downgrading the Individual ratings, Fitch is signalling its concern over increasing risks and worsening operating outlooks for the group's main businesses, together with the unique challenges the group faces in integrating ABN AMRO businesses in increasingly difficult market conditions. RBS Group also announced that following completion of a review of the carrying value of goodwill, it expects to make a goodwill impairment charge of between GBP15bn and GBP20bn.

The agency views UK government actions to support RBS Group and the broader UK banking system as positive for creditors, but notes the potential for restricted operational flexibility as a result of conditions that could be imposed by the UK government, the group's controlling shareholder. Fitch expects to see some significant changes to the group's strategic direction and priorities following completion of a strategic review. The UK government has today announced fresh measures aimed at supporting the UK financial system and facilitating the availability of credit to UK borrowers. Fitch will comment separately on these particular initiatives but expects RBS Group to be an early user of the new schemes.

Following the announcement in October 2008 that the major UK banks would be recapitalised, underwritten by the UK government, the RBS Group is currently 58% owned by the UK government. The replacement of the government-subscribed preference shares with ordinary shares will increase the UK government's stake in RBS Group to close to 70%. This large government stake, together with ongoing official commitment to provide capital and funding support to the major UK banks, underpins Fitch's continued view of the very strong likelihood of support for the RBS Group, and supports the upgrade of RBS Group's Support rating and Support Floor, as well as a Stable Outlook on the group's IDRs.

The economic outlook for RBS Group's main operating markets (particularly the UK, US and Ireland) is negative over the short- to medium-term and there remains significant uncertainty over the depth and length of the current recession. Fitch expects to see steady pressure on the group's earnings and asset quality as these economies continue to weaken. In the UK, RBS Group has not been as aggressive as some competitors in the residential housing and consumer lending markets and this should offer some protection as these segments continue to weaken. The expected increase in loan impairment charges relating to the group's Regional Markets businesses is GBP0.4bn compared to its November interim management statement. However, its leading share of the UK SME market and significant commercial property and large corporate exposures, where some concentrations have arisen following the ABN AMRO acquisition, are likely to pose some problems. The outlook for commercial property in 2009 remains negative as economic developments continue to put pressure on asset values and rentals. Outside the UK, the group is likely to suffer from asset quality deterioration in the US and Ireland. In the US, Citizens has historically been a low-risk lender, but has an externally sourced portfolio of home equity loans that is showing rapid deterioration, and its core lending is unlikely to escape the problems being felt in the US housing market and by the broader US economy. In Ireland, Ulster Bank faces similar pressures to the UK; a deteriorating economic environment, an abrupt contraction in economic growth forecast, rising unemployment and a worsening outlook for commercial property. Fitch considers that this is likely to lead to weaker revenue generation, sharp rises in impaired loans and steep falls in operating profitability.

RBS Group's capitalisation currently appears adequate following the government's recapitalisation operations, but is expected to decline as problems relating to recessionary economies materialise. The replacement of government preference shares with common equity will add around 86bp to the group's core equity Tier 1 ratio, which is expected to be in the range of 6.9% to 7.4% at end-2008. The Tier 1 ratio is expected to be between 9.5% and 10%. The massive goodwill impairment will not impact regulatory capital, but confirms the huge destruction of shareholder value that came from the ABN AMRO deal. Fitch expects 2009 to be characterised by sharply declining asset quality and pressure on revenues, particularly in businesses more reliant on market activity, thereby impacting internal capital generation severely. The group's funding has stabilised following the implementation of UK government initiatives in October 2008. The RBS Group, as have other UK major banks, has become increasingly reliant on guarantee schemes for longer-term funding, and Fitch does not expect this to diminish in the near-term.

The downgrade of RBS Group's, RBS plc's and Natwest's Individual ratings to 'E' reflects Fitch's opinion that due to the scale of the problems, RBS Group and its main operating banks are clearly reliant on external support - and to a greater extent than most other banks. The future direction of the group's and operating subsidiaries' Individual ratings will depend upon the pace and severity of continued pressures in the operating environment, together with the group's success in integrating ABN AMRO, de-leveraging the group's balance sheet, and implementing a refocused, lower risk, strategy. An additional element of uncertainty is the potential for government pressure to be brought to bear on the group to increase lending volumes to specific economic segments within the UK and it remains to be seen how compatible the group's de-leveraging and de- risking strategy is with government objectives.

Fitch's downgrade of RBS Group's preference shares and upper tier 2 hybrid capital instruments reflects the agency's view that deferral risk has increased significantly for banks that are in receipt of public funds, as well as the group's weakened standalone coupon-servicing capacity, as reflected in its Individual rating. This risk is heightened by the recognition that there is significant capital and financial flexibility to be retained by deferring on such instruments as well as Fitch's opinion that the replacement of government preference shares with common equity will result in a significantly elevated risk that market investors in RBS Group hybrid capital could be expected to share this burden with the UK taxpayer. The upper tier 2 instruments have been rated one notch higher than preference shares at 'BB' to reflect their higher recovery prospects.

The following ratings actions have been taken today:

Royal Bank of Scotland Group plc:Long-term IDR: affirmed at 'AA-' (AA minus); Outlook remains StableSenior unsecured debt: affirmed at 'AA-' (AA minus) Subordinated debt: affirmed at 'A+' Upper Tier 2 instruments: downgraded to 'BB' from 'A+'; on Rating Watch NegativePreferred stock: downgraded to 'BB-' (BB minus) from 'A+'; on Rating Watch NegativeShort-term IDR: affirmed at 'F1+ 'Commercial paper: affirmed at 'F1+';Individual rating: downgraded to 'E' from 'B/C' Support rating: upgraded to '1' from '5'Support Rating Floor: revised to 'AA-' (AA minus) from 'No Floor'

Royal Bank of Scotland plc:Long-term IDR: affirmed at 'AA-('AA minus')' ; Outlook remains StableGuaranteed debt: affirmed at 'AAA' Senior unsecured debt: affirmed at 'AA-('AA minus')' Subordinated debt: affirmed at 'A+' Upper Tier 2 instruments: downgraded to 'BB' from 'A+'; on Rating Watch NegativePreferred stock: downgraded to 'BB-' (BB minus) from 'A+'; on Rating Watch NegativeShort- term IDR: affirmed at 'F1+'Commercial paper: affirmed at 'F1+';Individual rating: downgraded to 'E' from 'B/C' Support rating: affirmed at '1'Support Rating Floor: affirmed at 'AA-' (AA minus)

National Westminster Bank Plc:Long-term IDR: affirmed at 'AA-' (AA minus); Outlook remains StableSenior unsecured debt: affirmed at 'AA-' (AA minus) Subordinated debt: affirmed at 'A+' Upper Tier 2 instruments: downgraded to 'BB' from 'A+'; on Rating Watch NegativePreferred stock: downgraded to 'BB-' (BB minus) from 'A+'; on Rating Watch NegativeShort-term IDR: affirmed at 'F1+ 'Individual rating: downgraded to 'E' from 'B/C'; rating withdrawn Support rating: affirmed at '1'Support Rating Floor: affirmed at 'AA-' (AA minus)

Ulster Bank LtdLong-term IDR: affirmed at 'A+'; Outlook remains StableShort- term IDR: affirmed at 'F1+'Individual rating: 'B/C'; on Rating Watch NegativeSupport rating: affirmed at '1'

Ulster Bank Finance plc:Commercial paper: affirmed at 'F1+'

Ulster Bank Ireland Limited:Long-term IDR: affirmed at 'A+'; Outlook remains StableSenior unsecured debt: affirmed at 'A+' Short-term IDR: affirmed at 'F1+ 'Individual rating: 'B/C'; on Rating Watch NegativeSupport rating: affirmed at '1'

First Active Plc:Long-term IDR: affirmed at 'A+'; Outlook remains StableSenior unsecured debt: affirmed at 'A+' Short-term IDR: affirmed at 'F1+'Commercial paper: affirmed at 'F1+'Individual rating: 'B/C'; on Rating Watch NegativeSupport rating: affirmed at '1'

Greenwich Capital Holdings Inc.:US commercial paper: affirmed at 'F1+'

Citizens Financial Group, Inc.: Long-term IDR: affirmed at 'A+'; Outlook remains StableShort-term IDR: affirmed at 'F1'Individual rating: 'B/C'; on Rating Watch NegativeSupport rating: affirmed at '1'

RBS Citizens, NA (formerly Citizens Bank, NA): Long-term IDR: affirmed at 'A+ '; Outlook remains StableShort-term IDR: affirmed at 'F1'Long-term deposits: affirmed at 'AA-' (AA minus)Short-term deposits: affirmed at 'F1+'Senior unsecured debt: affirmed at 'A+'Subordinated debt: affirmed at 'A' Individual rating: 'B/C'; on Rating Watch NegativeSupport rating: affirmed at '1'

Citizens Bank of Pennsylvania: Long-term IDR: affirmed at 'A+'; Outlook remains StableShort-term IDR: affirmed at 'F1' Long-term deposits: affirmed at 'AA-' (AA minus)Short-term deposits: affirmed at 'F1+'Individual rating: 'B/C'; on Rating Watch NegativeSupport rating: affirmed at '1'

Charter One Bank, NA: Senior unsecured debt: affirmed at 'A+' Subordinated debt: affirmed at 'A'

ABN AMRO Bank NVLong-term IDR: affirmed at 'AA-' (AA minus); Outlook remains StableSenior unsecured debt: affirmed at 'AA-' (AA minus)Subordinated debt: affirmed at 'A+'Upper Tier 2 instruments: downgraded to 'BB' from 'A+'; on RatingWatch NegativeShort-term IDR: affirmed at 'F1+'Commercial Paper and short- term debt: affirmed at 'F1+'Support rating: affirmed at '1'Support Rating Floor: affirmed at 'A-' (A minus)Mortgage covered bonds: remain unaffected by today's action

Contacts: Gordon Scott, +44 (0) 20 7417 4307; James Longsdon, + 44 (0)207 417 4309.

Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email: julian.dennison@fitchratings.com; Tyrene Frederick-Mack, New York, Tel: +1 212- 908-0540, Email: tyrene.frederick-mack@fitchratings.com; Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, http://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.


(END) Dow Jones Newswires
01-19-091302ET
Copyright (c) 2009 Dow Jones & Company, Inc.

Warning on Hybrid PreferredStocks - Financials (Fitch)

PRESS RELEASE: Fitch On Bank Hybrid Capital In 2009



Fitch Ratings-London-04 February 2009: Fitch Ratings says that the risk of deferred interest payments on bank hybrid capital instruments (which share characteristics of debt and equity) has increased materially for the banks most under pressure in the current financial crisis, due to significantly lower operating earnings, or losses, combined with high levels of government support, according to a comment published today.

"Central to this matter is the question of the extent to which the government support that has flowed - and will, in Fitch's opinion, continue to flow - in the world's banking systems can be relied upon to extend to existing holders of deeply subordinated bank capital instruments," says Gerry Rawcliffe, Group Credit Officer in Fitch's Financial Institutions group.

Fitch does not believe investors should view such support as continuing endlessly. Absent evidence of a normalising of operating conditions, regulators may well exhibit some bias toward protecting taxpayer funds. This could include looking to put hybrids into deferral.
"In certain cases the investment risks faced by investors in these instruments is sufficiently material for Fitch to view them as not being of investment grade," says Rawcliffe

Fitch's hybrid capital rating criteria (July 2005) do not assume that government support would be forthcoming for these instruments, and that the key driver of hybrid capital ratings is the stand-alone strength of an institution, as expressed in its Individual Rating. Fitch believes that the current exceptional circumstances merit a conservative application of the existing criteria, especially given the uncertainty and opaqueness surrounding the regulatory considerations in respect of hybrid capital.

In response to the heightened risk of hybrid coupon deferral and, in extreme cases, outright principal loss, Fitch has already taken rating actions that have widened the number of notches between the Issuer Default Rating (IDR) and the rating assigned to the hybrid and preferred instruments for select issuers. Given that the deferral decision process potentially involves both regulatory and political considerations, and the possibility that the situation regarding bank hybrid capital could change very quickly, Fitch expects to maintain downgraded hybrid capital instruments on Rating Watch Negative. For instruments with low investment grade ratings, the Rating Watch Negative indicates that a move into sub-investment grade is a real possibility.

Fitch regards a deferral on a hybrid instrument as non-performance from a ratings perspective. Deferral will lead to the assignment of instrument ratings consistent with non-performing obligations, typically in the low 'B' to 'CCC'- 'C' range. Loss expectations will be derived from a combination of the expected duration of the coupon deferral and the cumulative versus non-cumulative nature of the instrument.

The full comment, "Fitch Sees Elevated Risk of Bank Hybrid Captial Coupon Deferral in 2009", is available on the agency's subscription website, www.fitchresearch.com.