Moody's Investors Service - the credit rating arm of
) - has placed the ratings of
First Niagara Financial Group Inc.
) and its affiliates on review for a possible downgrade. The
rating agency believes the company has compromised with
creditworthiness while achieving significant growth in its loan
Currently, First Niagara's issuer rating of 'Baa 2' is under
review for a downgrade. Moreover, the company's subordinate debt
and senior unsecured debt that currently holds 'Baa3' and 'Baa2'
ratings, respectively, is under review for a downgrade.
First Niagara's main operating bank, First Niagara Bank, N.A.,
has a long-term deposit rating of 'Baa1,' which is also under
review for a downgrade. Moreover, the bank's senior unsecured
deposit rating of 'Baa1' is under review for a downgrade. The
bank's financial strength rating of 'C' and short-term
obligations rating of 'Prime-2' were affirmed by the rating
agency and are not under review.
From the outlook front of both First Niagara and its subsidiary
bank, the status changed from 'stable' to 'rating under review.'
First Niagara's faster pace of loan growth prompted Moody's to
review its ratings for a possible downgrade. The surge in loan
stemmed from acquisitions and growth in originations in
commercial loan and indirect auto loan, precisely from the
exposures in new geographic markets. However, concern arises
owing to the fact that the growth is significantly higher than
that of the company's peer group at a time when the market is
facing a stiff competition for lending volumes.
Moody's will scrutinize the steps taken by First Niagara that led
to the boost in its loan portfolio along with any changes
incorporated by the company to improve its risk management
infrastructure for managing larger loan volumes and portfolio
Further, Moody's will asses First Niagara's risk profile of
above-average holdings of credit-sensitive securities. As of Sep
30, 2013, the ratio of credit-sensitive securities to total
investments surged to 45% from 18% as of Dec 31, 2011. Also,
compared with its peers, the company had one of the highest total
investments to total assets ratios that stood at 31% as of 30
First Niagara's capital ratios declined in the past year owing to
increased growth in loan and increased dividend payments.
Notably, the payout ratio was 43% for the nine months ended Sep
As of Sep 30, 2013, tangible common equity to risk-weighted
assets ratio and tier 1 leverage ratio stood at 8.8% and 7.1%,
respectively, which were much lower compared to peer companies
with similar ratings. Hence Moody's will also lay emphasis on the
company's capital management plans.
MERIDIAN INTRST (EBSB): Free Stock Analysis
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INVESTORS BANCP (ISBC): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
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If Moody's downgrades First Niagara's ratings, it will surely
hurt investors' confidence in the stock. Nevertheless, we remain
optimistic about the performance of the company following its
third-quarter earnings release that outpaced the Zacks Consensus
Estimates amid a prevailing low interest rate environment and
sluggish economic recovery.
First Niagara currently carries a Zacks #3 Rank (Hold). Some
better-ranked Savings and Loan Institutes include
Investors Bancorp Inc.
Meridian Interstate Bancorp, Inc.
), both carrying a Zacks Rank #1 (Strong Buy).