MOODY'S CONFIRMS WITH POSITIVE OUTLOOK A1 SENIOR DEBT RATING OF SUNTRUST BANKS; UPGRADES SECURITIES RATINGS OF CRESTAR
Moody's Investors Service confirmed at A1 the senior debt ratings of SunTrust Banks, Inc. (STI) and the Aa3 long-term deposit ratings of its subsidiary banks. Moody's upgraded to A2, from Baa1, the subordinated debt rating of Crestar Financial Corporation (CF), as well as the long-term deposit rating of its subsidiary bank, from A2 to Aa3. The rating changes came in anticipation of the soon-to-be closed merger between the two companies in a share transaction. The outlook for the ratings is positive.
According to the terms of the transaction, CF will become a wholly owned subsidiary of STI and the debt of CF will be assumed by STI. On a pro forma basis, STI will have assets of $87 billion and book equity of around $7.4 billion. Moody's said that STI's book capital position is bolstered by substantial unrealized gains on holdings of Coca-Cola common stock; special treatment allows for partial benefit in the company's strong regulatory capital ratios, but adds volatility because of market swings.
Moody's added that the acquisition of CF will reinforce STI's solid regional franchise in the southeastern US without significantly altering its risk profile. The group is expected to continue to show average, yet unsurprising, earnings performance. The complementary nature of the geographical franchise means that no merger-related branch closures are planned in either company's area. On the other hand, CF (a one-bank holding company) was better at managing its overhead. Additionally, no large scale staff reductions are planned in the near future, although some voluntary redundancies are assumed. Consequently, modest costs saves will be slowly realized over the ensuing 18 months. Conservative underwriting and a relatively stable operating environment have combined to limit asset quality risk.
At the same time, Moody's adjusted downward the bank financial strength rating of STI's lead subsidiary, Atlanta-based SunTrust Bank, from A to B+. The rating adjustment reflects the wholesale nature of the loan portfolio and the bank's increasing reliance on purchased funding. Its strong capital base enjoys the benefit of equity holdings (Coke stock appreciation) but is subject to shifts in market price.
The following ratings were confirmed:
SunTrust Banks, Inc.-- A1 on senior long-term debt; and A2 on long-term subordinated debt.
SunTrust Bank, Atlanta -- Aa3 for long- term deposits; Aa3 for long-term other senior obligations; A1 on subordinated debt.
SunTrust Bank, Central Florida, N.A.; SunTrust Bank, Miami, N.A.; SunTrust Bank, South Florida, N.A.; SunTrust Bank, Tampa Bay: Aa3 for long- term deposits; Aa3 for long-term other senior obligations; A1 on subordinated debt; and B financial strength ratings.
SunTrust Bank, Augusta, N.A.; SunTrust Bank, Chattanooga, N.A.; SunTrust Bank, East Central Florida, N.A.; SunTrust Bank, East Tennessee, N.A.; SunTrust Bank, Gulf Coast; SunTrust Bank, Mid-Florida, N.A.; SunTrust Bank, Middle Georgia, N.A.; SunTrust Bank, Nashville, N.A.; SunTrust Bank, Nature Coast; SunTrust Bank, North Central Florida; SunTrust Bank, North Florida, N.A; SunTrust Bank, Northeast Georgia, N.A.; SunTrust Bank, Savannah, N.A.; SunTrust Bank, South Georgia, N.A.; SunTrust Bank, Southeast Georgia, N.A.; SunTrust Bank, Southwest Florida.; SunTrust Bank, Tallahassee, N.A.; SunTrust Bank West Florida; SunTrust Bank, West Georgia, N.A: Aa3 for long- term deposits; Aa3 for long-term other senior obligations; A1 on subordinated debt; and C+ financial strength ratings.
SunTrust Capital I and SunTrust Capital II--"a1" on preferred stock.
All Prime-1 ratings of the above entities are hereby confirmed.
The following ratings were upgraded:
Crestar Financial Corporation-- long-term subordinated debt, from Baa1, to A2; and its Prime-2 rating for Commercial Paper, has been withdrawn.
Crestar Capital Trust I-- preferred stock, from "baa1" to "a1".
Crestar Bank-- long-term deposits and other senior obligations, from A2 to Aa3; its C+ financial strength and Prime-1short-term deposit ratings are confirmed.
SunTrust Banks, Inc. is based in Atlanta, Georgia.
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