MOODY'S AFFIRMS FLEETBOSTON FINANCIAL'S CREDIT RATINGS (SENIOR DEBT AT A1) BUT CHANGES OUTLOOK TO NEGATIVE
Moody's Investors Service affirmed the credit ratings of FleetBoston Financial Corporation (Fleet) (senior debt at A1), but changed the company's rating outlook from stable to negative. The rating agency cited the company's large exposure in Argentina and the economic and political uncertainties in that country as the reason for the outlook change. In affirming the ratings, however, Moody's noted Fleet's strong deposit franchise in the Northeast US and its diversified and sizable core earnings base. In its November 2001 upgrade of Fleet (holding company and banks), Moody's recognized the improved liquidity position at the parent company level.
The change in outlook reflects Moody's view that the pesofication of dollar-denominated assets and the devaluation of the Argentine peso, coupled with foreign exchange and deposit controls, increase the potential for extremely high credit losses for all banks in the system.
Moody's noted the difficulty in quantifying the downside for banks that operate in Argentina, adding that Argentina's crisis will be a protracted one. Fleet's recently announced writedowns are likely to be insufficient, according to Moody's, although the precise impact of additional losses on Fleet's performance is unknown at this time. However, Moody's understands that Fleet's Argentine deposits are payable only at its local branch - suggesting a limit to its liabilities and thus its exposure in the country. In the meantime, the company has delayed its fourth quarter earnings announcement so that Fleet's management can better assess the impact of the recent developments in Argentina.
According to Moody's, Fleet has a sufficient earnings cushion as well as a sizable equity base to absorb potential losses over time. Nonetheless, a market-based valuation of Fleet's investments in Argentina indicates a significant hit to one year's worth of earnings.
Moody's will continue to monitor closely developments in Argentina, particularly as they relate to Fleet's creditworthiness. Fleet enjoys a strong core deposit franchise with dominant market shares in New Jersey, Connecticut, and Massachusetts, a business which underpins its debt and deposit ratings. Finally, Moody's commented, as a result of prudent management actions, Fleet has surplus on-balance sheet liquidity to meet all of its cash obligations within the upcoming twelve months. Furthermore, management is committed to maintaining this favorable liquidity profile.
FleetBoston Financial Corporation, with headquarters in Boston, MA, had assets of approximately $200 billion at September 30, 2001.
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