Concluding the review started in Oct 2013, Moody's Investors
Service, the credit rating wing of
), has slashed the long-term ratings of
City National Corporation
) and its operating subsidiary, City National Bank.
The credit rating agency downgraded the long-term senior
unsecured and issuer ratings of City National to "A3" from "A2."
Concurrently, the bank financial strength rating (BFSR)/baseline
credit assessment (BCA) rating and the long-term deposit rating
of City National Bank was downgraded to "C+/a2" from "B-/a1" and
"A2" from "A1," respectively. All the ratings carried a stable
The downgrade was led by mounting pressure on the company's
profitability due to a low interest rate environment. Being
highly reliant on net interest income, lower net interest margin
and fee revenue pressures are likely to weigh on City National's
pre-tax, pre-provision profits. Also, the company is restricted
by its low cost deposit base and low levels of market
As a result, City National has limited ability to counter the
revenue pressures. Moody's expects the company to witness more
pressure on revenue generation going forward as a result of lower
interest income from the divestiture of the FDIC-covered loan
portfolio. Expense reduction is not expected to favor up margins.
SIERRA BANCORP (BSRR): Free Stock Analysis
CITY NATIONAL (CYN): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
PREFERRED BANK (PFBC): Free Stock Analysis
To read this article on Zacks.com click here.
Moreover, a moderate capital position also accounts for the
ratings demotion. Nevertheless, Moody's recognized that the
capital position of the company positions it favorably to counter
credit losses in an adverse economic condition.
Additionally, Moody's is of the opinion that although the ratings
are downgraded, they still remain above the ratings of other U.S.
banks owing to balance sheet maintenance, high core deposit
funding and above-average asset quality that is driven by its
residential mortgage and home equity portfolio (representing
one-third of the total loans).
Nevertheless, ratings downgrade from credit rating agencies
dampens the creditworthiness of a company in the market and
affects investor confidence in the stock.
City national currently carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the same sector include
). Both the stocks carry a Zacks Rank #1 (Strong Buy).