MOODY'S RAISES RATINGS OF FIRST UNION CORPORATION AND FIRST FIDELITY CORPORATION (SENIOR DEBT TO A1)
New York, 01-04-96 -- Moody's Investors Service raised the ratings of First Union Corporation's long-term senior debt to A1 from A2. The ratings of First Union's bank subsidiaries for their long-term deposits were also raised to Aa3. The ratings of First Fidelity Corporation, First Fidelity Incorporated, and its bank subsidiary were raised to the level of First Union Corporation and its banks. The long-term ratings of First Union and First Fidelity had been placed under review for possible upgrade on June 19, 1995 following the announcement that the two bank holding companies had signed a definitive agreement to merge, with First Union stock being offered to First Fidelity shareholders. The completion of the merger was announced on January 2, 1996.
Moody's said that the upgrades were based on the broader geographic scope and larger scale of businesses of the combined entity, compared with either institution viewed alone. The rating agency also said that its action was also based on a moderate improvement in underlying earnings and did not anticipate either a sharp rise in incremental earnings or the effect of substantial cost reductions.
Moody's noted that First Union's acquisition of First Fidelity represented an extension of First Union into the contiguous territory of Pennsylvania and New Jersey from its base in the southeast United States. The rating agency said that First Fidelity had, under its present management, built up a strong market presence and a highly cost-efficient retail and middle market banking business in the mid-Atlantic region. Asset quality had improved markedly, although some exposure to commercial real estate -- the source of major problems for First Fidelity in the early 1990s -- remained.
Moody's noted that First Union has developed substantially from its origins as a southeast US regional bank, although its growth has been at a steady pace, and largely geographic -- the company has continued to focus on retail and middle market commercial banking business lines. A substantial part of First Union's plan for the First Fidelity acquisition is to extend its own commercial banking products to the middle-market customers in First Fidelity's market.
First Fidelity is First Union's largest acquisition to date. The merger has been effected by an exchange of stock, and Moody's said that First Union's core capital ratios will improve slightly as a result. Although First Union's capital levels have been declining in recent quarters, Moody's noted that the company has a relatively low-risk business mix, and that its financial and capital structure continued to be appropriate. The rating agency said that it expected First Union to continue to participate in the process of nation-wide consolidation of the US banking industry, and to retain its conservative approach to acquisitions and the extension of its business lines represented by the consolidation of First Fidelity's business. Moody's also said that it continued to have a positive secular outlook for the credit quality of the US banking industry.
The following ratings were raised:
First Union Corporation -- the long-term debt ratings to A1 (senior) and A2 (subordinated) from A2 and A3, and the rating of cumulative dividend preferred stock to "a1" from "a2".
First Union Corporation of Florida (debt assumed by First Union Corporation) -- the long-term subordinated debt rating to A2 from A3.
First Union National Bank of Florida, Georgia, Maryland, South Carolina, Tennessee, Virginia, and Washington D.C. -- the ratings of the banks for long term deposits and other senior obligations, and the banks' counterparty ratings, to Aa3 from A1.
First Fidelity Bancorporation -- the long-term debt ratings to A1 (senior) and A2 (subordinated) from A2 and A3, and the rating of cumulative dividend preferred stock to "a1" from "a2".
First Fidelity Incorporated -- the long-term subordinated debt rating to A2 from A3.
First Fidelity Bank, N.A. -- the ratings of the bank for long term deposits and other senior obligations, and the bank's counterparty rating, to Aa3 from A1.
The following ratings were confirmed:
First Union Corporation -- the rating of the company for its commercial paper of Prime-1.
First Union National Bank of North Carolina -- the ratings of the bank for long term deposits and other senior obligations, and the bank's counterparty rating, of Aa3.
First Union National Bank of Florida, Georgia, North Carolina, South Carolina, Tennessee, and Virginia -- the bank financial strength ratings of B+ (North Carolina), B (Florida), C+ (Georgia, Tennessee, Virginia), and C (South Carolina).
First Fidelity Corporation -- the rating of the company for its commercial paper of Prime-1.
First Fidelity Bank, N.A. -- the bank financial strength rating of B.
First Union Corporation, headquartered in Charlotte, North Carolina, is the sixth-largest US bank holding company, with total assets at end-1995 of approximately $126 billion.
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