Fitch Ratings has lowered the long-term and short-term Issuer
Default Ratings (IDRs) of
TCF Financial Corporation
) and its subsidiaries to 'BBB-/F3'. Fitch downgraded TCF
Financial after it concluded the peer review of 16 mid-tier
CATHAY GENL BCP (CATY): Free Stock Analysis
FULTON FINL (FULT): Free Stock Analysis
TCF FINL CORP (TCB): Free Stock Analysis
WEBSTER FINL CP (WBS): Free Stock Analysis
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As per Fitch, TCF Financial's deteriorating credit quality,
comparatively risky balance sheet and high level of exposure to
consumer real estate loans relative to capital that has waned
through strategic balance sheet restructurings are the main
causes for the downward revision. In addition, lack of adequate
liquidity remains a concern.
Asset quality at TCF financial has been constantly deteriorating
due to high level of consumer-related problem loans. TCF
Financial has the worst nonperforming asset ratio (NPA ratio)
among the mid-tier regional group. At the end of 2012, NPA ratio
stood at 7.50%, surging 24 basis points year over year. Elevated
net charge-offs add to the already-stressed credit quality.
Further, increasing credit costs will negatively impact
profitability. Higher levels of pre provision net revenue (PPNR)
owing to the company's business strategy and balance sheet
structure has resulted in a loan-to-deposit ratio of nearly 110%,
comparatively high for TCF Financial's rating. However, Fitch
expects overall earnings performance to be marred by the
requirement of higher provisions to maintain reasonable reserve
Fitch also noted that capital levels considerably have reduced
due to restructuring of balance sheet. The current capital levels
may prove disastrous if the credit trends deteriorate.
Fitch has reaffirmed its rating outlook on TCF Financial at
'Negative'. The rating agency is of the idea that further
negative revision will be fuelled by failure to stabilize credit
risk, which in turn will lead to deteriorated earning performance
and low capital levels. Also, if TCF Financial's new strategies
fail to augment its financial condition, it will lead to
Rating action on Other Banks
In addition to TCF Financial, Fitch lowered IDRs of
Fulton Financial Corporation
). On the other hand, the IDRs of
Cathay General Bancorp
) and First National of Nebraska were upgraded. Fitch has
affirmed the IDRs of the remaining 12 banks, which included
Webster Financial Corp.
). IDRs for mid-tier regional banks are dispersed with a low of
'BB-' and a high of 'A+.'
In our point of view, the reasons for downgrade are well
justified. However, from TCF Financial's perspective, the
downgrade will lead to higher cost of funds.
Currently, TCF Financial carries a Zacks Rank #3 (Hold).