Fitch Ratings has reiterated its credit ratings and outlook on
Webster Financial Corp.
). The rating agency affirmed the company's long term Issuer
Default Ratings (IDR) at 'BBB' and short term IDR at 'F2'. At the
same time, the agency has retained the company's outlook at
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Fitch stated that Webster's robust asset quality and
profitability trends were in line with the agency's expectations.
Further, in the third quarter of 2012, the company's asset
quality witnessed improving trends with almost all the credit
metrics including nonperforming assets, allowance for loan losses
and net charge-offs declining on a year-over-year basis. Yet,
Fitch remains concerned about higher levels of troubled debt
restructurings (TDRs), though they have performed comparatively
better than those of Webster's peers.
Moreover, Fitch stated Webster's profitability and capital ratios
are relatively at par with the similarly rated peers and are also
within the company's historical range. However, the company's
capitalization could be an impediment for positive ratings
action. Nonetheless, given the augmentation in certain categories
of loan portfolios, this risk would be slightly mitigated.
Additionally, Fitch anticipates continued low rate environment to
pressurize Webster's net interest margin (NIM) in the near to mid
term. Over the last several quarters, NIM has been exhibiting a
declining trend. In the third quarter, it was 3.28%, waning 21
basis points (bps) from the year-ago quarter and 4 bps from the
prior quarter. However, once the rates rise, the company's
earnings will benefit from it. Hence, till then, Fitch expects
Webster's earnings to remain within its historical range.
Further, given the earnings headwinds in the subsequent quarters
and lower capital levels compared with the peers, Fitch stated
that Webster's IDRs have limited upside. Nevertheless, according
to Fitch, Webster's continuously improving credit quality trends,
manageable credit expenses and stable capital ratios justify its
Late last month, Fitch had affirmed its IDRs on 14 regional
banks, following a thorough review of the peer group. The banks
Capital One Finance Corp.
Fifth Third Bancorp
), among others.
Currently, Webster retains a Zacks #3 Rank, which translates into
a short-term Hold rating. We believe that the rating affirmation
will prove beneficial to the company's financials. Further, this
will reinforce investors' confidence in the company, which might
lead to positive estimate revisions. This, in turn, could cause
an improvement in the Zacks Rank.