On Monday, Moody's Investors Service, a rating arm of
), completed the review for the upgrade in ratings of
Regions Financial Corp.
) and its subsidiaries initiated on Oct 3, 2012. Upon completion,
Moody's upgraded the long-term ratings of Regions and its
subsidiaries, while it has maintained the outlook at 'Stable'.
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REGIONS FINL CP (RF): Free Stock Analysis
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Regions has been upped to Ba1 from Ba3 for senior debt, while the
short-term rating has been affirmed at Not-Prime. Moreover,
Regions' primary subsidiary, Regions Bank has been upgraded to
Baa3 from Ba1 for long-term deposits and to Prime-3 from
Not-Prime for short-term deposits.
Further, Regions Bank has a standalone bank financial strength
rating of D+, which has been affirmed. However, the baseline
credit assessment of ba1 for the bank has been revised upward to
Reason Behind Upgrade
The rating agency is impressed by Regions' efforts towards
improving asset quality and reducing its risk profile. Moody's
stated that the revision of the ratings came on the back of
improvement in most of the credit metrics. Along with net
charge-offs and delinquencies, level of nonperforming assets
(NPAs) have improved as well.
Over the past two years, Regions has been working hard to reduce
its risk profile. The attempts are visible as its asset
concentrations have declined, including commercial real estate
(CRE) and home equity (HE). As of Sep 30, 2012, Regions'
combined CRE and HE exposures declined to 2.3x tangible
common equity (TCE) from 3.7x TCE as of Dec 31, 2010.
Moreover, the rationale behind the further revision will follow
Regions' efficiency in managing additional risks related to its
strategic efforts including diversification of its revenue
avenues to overcome continuing earnings pressure in the
persistent low interest rate environment.
Previously, in February 2012, Moody's upped the rating outlook
for Regions and its subsidiaries, including Regions Bank, to
'Stable' from 'Negative'. The positive action came on the back of
Regions' reduction in risk concentrations and stabilization of
the company's asset quality.
Rating Actions by other Agencies
Following the announcement of Regions' repayment of Troubled
Asset Relief Program (TARP) funds, in March 2012, Standard &
Poor's Ratings Services lifted its long and short-term issuer
credit ratings on Regions to 'BBB-/A-3' from 'BB+/B'. It also
upped ratings on Regions Bank to 'BBB/A-2' from 'BBB-/A-3'.
Moreover, as of June 2012, Fitch Ratings holds 'BBB-' for senior
debt on Regions, with the 'Stable' rating outlook.
The rating upgrades are valuable for Regions as they play a major
role in preserving investor confidence in the stock and help
boost its creditworthiness in the market.
Overall, Regions' favorable funding mix, improved core business
performance, its expansion mode and strategies will continue to
yield profitable earnings in the upcoming quarters. Improvement
in credit quality is also encouraging. While de-risking measures
are encouraging at Regions, the upfront costs of such initiatives
cannot be ignored.
Besides, a tepid economic recovery, regulatory issues along with
the expectation of a continued low interest rate environment are
projected to limit the stock's upside potential in the upcoming
Regions currently retains a Zacks #3 Rank, which translates into
a short-term Hold rating. We believe that on account of such
rating upgrades, there is the possibility of upward earnings
estimate revisions. Hence, the stock is expected to see an
improvement in its current rank.