New York, February 01, 2022 -- Moody's Investors Service, ("Moody's") has confirmed the ratings
and assessments of Webster Financial Corporation and Webster Bank N.A,
including the bank's a3 standalone Baseline Credit Assessment (BCA).
The bank's Prime-1 short-term deposit rating and the
Prime-2 short-term counterparty risk rating were affirmed.
This rating action concludes the review for downgrade initiated on 20
April 2021, following Webster's announcement that it agreed
to acquire New York-based Sterling Bancorp ("Sterling")
in an all-stock transaction, and was prompted by today's
announcement of the close of the transaction. Following the ratings
confirmation, the outlook on Webster is negative to reflect Moody's
assessment that integration risks associated with merging two banks of
similar size continue to weigh on the standalone credit profile and ratings
of the combined bank.
Confirmations:
.. Issuer: Webster Bank N.A.
.... Adjusted Baseline Credit Assessment,
Confirmed at a3
.... Baseline Credit Assessment, Confirmed
at a3
.... Long term Counterparty Risk Assessment,
Confirmed at A2(cr)
.... Short term Counterparty Risk Assessment,
Confirmed at P-1(cr)
.... Long term Counterparty Risk Rating,
Confirmed at A3
.... Long term Deposit Rating, Confirmed
at A1, Outlook changed to Negative from Rating Under Review
.... Issuer Rating, Confirmed at Baa1,
Outlook changed to Negative from Rating Under Review
.. Issuer: Webster Financial Corporation
.... Issuer Rating, Confirmed at Baa1,
Outlook changed to Negative from Rating Under Review
.... Senior Unsecured Regular Bond/Debenture,
Confirmed at Baa1, Outlook changed to Negative from Rating Under
Review
.... Senior Unsecured Shelf, Confirmed
at (P)Baa1
.... Subordinate Shelf, Confirmed at
(P)Baa1
.... Pref. Stock Shelf, Confirmed
at (P)Baa2
.... Pref. Stock Non-cumulative
Shelf, Confirmed at (P)Baa3
.... Pref. Stock Non-cumulative,
Confirmed at Baa3 (hyb)
Affirmations:
.. Issuer: Webster Bank N.A.
.... Short term Counterparty Risk Rating,
Affirmed P-2
.... Short term Deposit Rating, Affirmed
P-1
Outlook Actions:
.. Issuer: Webster Bank N.A.
.... Outlook, Changed to Negative from
Rating Under Review
.. Issuer: Webster Financial Corporation
.... Outlook, Changed to Negative from
Rating Under Review
RATINGS RATIONALE
The confirmation of Webster's a3 BCA and ratings reflects Moody's
conclusion that its merger with Sterling does not materially weaken Webster's
standalone credit profile. During the review, Moody's assessed
the significance of integration risks resulting from merging two banks
of similar size that have different business profiles, as well the
overall asset risk of the combined company.
The merger creates a US Northeast regional bank with assets of approximately
$65 billion operating under the Webster brand. In Moody's
view, however, Webster's merger with Sterling is a complex
undertaking because Sterling itself is the product of a number of acquisitions.
As such, this large merger poses higher integration risks,
which Moody's believes will take time for management to reduce,
thereby demonstrating avoidance of significant missteps. These
considerations have led Moody's to assign a negative outlook to
Webster.
Following the close of the merger announced earlier today, Moody's
expects Webster will continue to operate with a solid balance sheet,
including healthy capitalization and liquidity. Prior to the close
of the merger, both Webster and Sterling had very solid regulatory
capital positions, as measured by Common Equity Tier 1 (CET1) ratios
of 11.77% and 12.50%, respectively,
as of 30 September 2021. While Webster is now targeting a lower
CET1 capital ratio of 10.5%, Moody's believes
Webster's capitalization will remain adequate to protect its creditors
from unexpected losses during the integration process.
Moody's has indicated that the Sterling acquisition expands Webster's
footprint into contiguous New York markets, providing meaningful
scale and broadening its deposit base and loan portfolio. It has
also noted that Sterling experienced asset quality deterioration in its
loan portfolio in 2020 and 2021, particularly in its commercial
real estate (CRE) portfolio. Despite this, however,
Sterling has executed loan sales of its most troubled CRE loans,
reducing its standalone CRE concentration to 3.6 times its Moody's
adjusted tangible common equity (Moody's TCE) base at 30 September
2021, compared to 3.9 times at year-end 2020.
Webster's credit marks on the acquired assets also provide a cushion
against further potential losses in the combined portfolios. On
a combined basis, Moody's estimates Webster's CRE concentration
will be 2.9 times its TCE base. While higher than Webster's
historical level of around 2 times TCE, Moody's expects Webster
will not materially increase its CRE concentration over the next 12-18
months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, rating upgrades are unlikely over the
next 12-18 months. Webster's outlook could return to stable
if the bank demonstrates it has materially reduced integration risks,
reduces its CRE concentration, and maintains adequate capitalization,
while demonstrating continued good credit risk management.
Webster's ratings could be downgraded if integration risks crystallize,
weakening profitability, if its Moody's TCE ratio declines
below 10%, or if the bank displays a notable increase in
its risk appetite, which Moody's assessed as no longer being
compatible with the current ratings level.
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Megan Fox
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Andrea Usai
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
