New York, February 07, 2019 -- Moody's Investors Service ("Moody's") has placed on review for downgrade
all long-term ratings of BB&T Corporation (senior debt at A2)
as well as the long-term ratings and the a1 standalone Baseline
Credit Assessment (BCA) of its lead bank, Branch Banking and Trust
Company (Aa1 for deposits). BB&T's short-term
ratings were also placed on review for downgrade with the exception of
its bank-level short-term deposits, at Prime-1,
and its bank-level short-term counterparty risk assessment,
at Prime-1(cr), which were both affirmed.
In the same action, Moody's has placed on review for upgrade
all long-term ratings of SunTrust Banks, Inc. (senior
debt at Baa1) as well as the long-term ratings and the a3 BCA of
its lead bank, SunTrust Bank (A1 for deposits). With respect
to SunTrust's short-term ratings, its holding company
commercial paper rating, at Prime-2, and its holding
company other short-term rating, at (P)Prime-2,
were affirmed. SunTrust's bank-level short-term
deposit rating, at Prime-1, and its bank-level
short-term counterparty risk assessment, at Prime-1(cr),
were affirmed. SunTrust's bank-level Prime-2
and (P)Prime-2 ratings were placed on review for upgrade.
A complete list of affected ratings and entities within both banking groups
can be found at the end of this press release.
RATINGS RATIONALE
The rating action follows the banks' announcement that they will
merge in an all-stock transaction. The proposed merger will
create the sixth largest US commercial bank with strong market positions
in the Southeast and Mid-Atlantic. The banks anticipate
that required deposit divestitures will be minimal, but the proximity
of many of their branches to one another suggests that the combined entity
can generate cost savings through consolidation. That would accelerate
a branch downsize program long underway at both banks and support incremental
investments in digital technology in a rapidly evolving banking environment.
Moody's expects the combined firm will have a strong efficiency
profile, once merger-related costs are fully accounted for.
"Nonetheless," said Moody's Senior Vice President
Allen Tischler, "we placed BB&T's ratings on review
for downgrade because its proposed merger with SunTrust is a departure
from its historic avoidance of transformational acquisitions that constitute
a large bet on its future." Although BB&T has a strong
acquisition integration track record, its combination with SunTrust
will heighten its risk profile, in Moody's view. In
particular, although the banks' business mixes are complementary
and no large risk concentrations are expected to result from their combination,
a full integration of people, platforms and corporate cultures will
take years.
At the same time, Moody's placed SunTrust's ratings
on review for upgrade because its creditors may benefit from the merger.
BB&T has been more profitable than SunTrust, its capital is
modestly higher and its historic credit quality has been superior.
In particular, while SunTrust generated multiple quarters of net
losses during the 2008-09 financial crisis, BB&T remained
profitable despite having significant exposure to Southeastern US real
estate, which was particularly hard hit by the housing downturn.
Moody's noted that both BB&T and SunTrust have been included
in the enhanced US regulatory stress testing since it was introduced after
the financial crisis. Under the 2018 stress test exercise,
which was administered by the Federal Reserve (Fed), both banks
performed better than the median, with a comparatively low decline
in capital under stress. Recent Fed announcements suggest that
on a standalone basis both banks may no longer be subject to future stress
tests because their total assets are less than $250 billion.
On a combined basis, however, the enlarged bank is likely
to continue to participate in future Fed stress tests, which Moody's
considers to be positive for creditors because of the enhanced regulatory
scrutiny.
Moody's review is unlikely to conclude until after the deal has
received regulatory approvals and the transaction closes. The banks'
management teams anticipate this will occur in the fourth quarter of 2019.
However, Moody's may take rating actions in the interim and
prior to the close, as it gains further understanding of the transaction
and relevant implications for the creditors of both banks. Moody's
believes the likelihood that BB&T's ratings remaining at their
current level is low because the proposed merger introduces a level of
integration and execution risk that BB&T has not previously encountered,
raising the risk for its creditors. "Nonetheless,"
added Mr. Tischler, "by spearheading what could be
an increase in large US regional bank consolidation, BB&T and
SunTrust have had the opportunity to be choosy about which combination
provides the best platform to compete." That could result
in a superior credit profile over the long term."
WHAT COULD MOVE THE RATINGS UP/DOWN
For BB&T, Moody's review for downgrade will focus on the risks
associated with such a large transaction, including the challenges
of integrating two institutions with different histories and cultures.
Given the direction of the ratings review, positive rating movement
is unlikely.
For SunTrust, Moody's review for upgrade will focus on the
benefits to creditors of the proposed combination, specifically
its stronger prospective profitability and improved revenue diversity.
Given the direction of the ratings review, downward rating movement
is unlikely.
BB&T's a1 BCA is currently two notches higher than that of SunTrust
at a3. In a scenario where BB&T's BCA is downgraded by
one notch to a2 and SunTrust's BCA is upgraded one notch to the
same a2 level, SunTrust's bank-level senior debt rating
could be upgraded by two notches. This would occur if the combined
entity operates with a sufficiently large portion of unsecured debt in
its liability structure, as BB&T does currently because Moody's
expects a lower potential loss severity for bank-level senior creditors
than for its other debt classes, as a result. For this reason,
SunTrust's bank-level (P)Prime-2 other short-term
rating and (P)Prime-2 short-term bank note program rating,
which are derived from SunTrust's bank-level Baa1 senior
debt rating, were placed on review for upgrade.
On the other hand, if the combined entity does not operate with
a sufficiently large portion of unsecured debt in its liability structure,
BB&T's bank-level senior debt rating could be downgraded
by two notches. In that scenario, BB&T's short-term
bank-level (P)Prime-1 bank note program rating could also
be downgraded.
Separately, in a scenario where BB&T's BCA were downgraded
by two notches to a3, at the same level as SunTrust's current
BCA, its Prime-1 short-term bank-level counterparty
risk rating could decline to Prime-2.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Affirmations:
..Issuer: Branch Banking and Trust Company
.... ST Deposit Rating, Affirmed P-1
.... ST Counterparty Risk Assessment,
Affirmed P-1(cr)
..Issuer: SunTrust Bank
.... ST Deposit Rating, Affirmed P-1
.... ST Counterparty Risk Assessment,
Affirmed P-1(cr)
..Issuer: SunTrust Banks, Inc.
.... Commercial Paper, Affirmed P-2
.... Senior Unsecured Medium-Term Note
Program, Affirmed (P)P-2
On Review for Downgrade:
..Issuer: BB&T Corporation
.... Issuer Rating, Placed on Review
for Downgrade, currently A2, Rating Under Review From Stable
.... Senior Unsecured Medium-Term Note
Program, Placed on Review for Downgrade, currently (P)A2
.... Subordinate Medium-Term Note Program,
Placed on Review for Downgrade, currently (P)A2
.... Pref. Shelf, Placed on Review
for Downgrade, currently (P)A3
.... Senior Unsecured Shelf, Placed
on Review for Downgrade, currently (P)A2
.... Subordinate Shelf, Placed on Review
for Downgrade, currently (P)A2
.... Pref. Non-cumulative Shelf,
Placed on Review for Downgrade, currently (P)Baa1
.... Pref. Stock Non-cumulative,
Placed on Review for Downgrade, currently Baa1 (hyb)
.... Subordinate Regular Bond/Debenture,
Placed on Review for Downgrade, currently A2
.... Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently A2, Rating Under
Review From Stable
..Issuer: Branch Banking and Trust Company
.... Adjusted Baseline Credit Assessment,
Placed on Review for Downgrade, currently a1
.... Baseline Credit Assessment, Placed
on Review for Downgrade, currently a1
.... LT Counterparty Risk Assessment,
Placed on Review for Downgrade, currently Aa3(cr)
.... LT Counterparty Risk Rating, Placed
on Review for Downgrade, currently A1
.... ST Counterparty Risk Rating, Placed
on Review for Downgrade, currently P-1
.... Issuer Rating, Placed on Review
for Downgrade, currently A1, Rating Under Review From Stable
.... Subordinate Bank Note Program,
Placed on Review for Downgrade, currently (P)A2
.... Senior Unsecured Bank Note Program,
Placed on Review for Downgrade, currently (P)A1
.... ST Bank Note Program, Placed on
Review for Downgrade, currently (P)P-1
.... Subordinate Regular Bond/Debenture,
Placed on Review for Downgrade, currently A2
.... Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently A1, Rating Under
Review From Stable
.... LT Deposit Rating, Placed on Review
for Downgrade, currently Aa1, Rating Under Review From Stable
..Issuer: National Penn Bancshares, Inc.
....Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently A2, Rating Under
Review From Stable
..Issuer: Susquehanna Bancshares, Inc.
....Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently A2, Rating Under
Review From Stable
On Review for Upgrade:
..Issuer: National Commerce Capital Trust I
.... Pref. Stock, Placed on Review
for Upgrade, currently Baa2 (hyb)
..Issuer: SunTrust Bank
.... Adjusted Baseline Credit Assessment,
Placed on Review for Upgrade, currently a3
.... Baseline Credit Assessment, Placed
on Review for Upgrade, currently a3
.... LT Counterparty Risk Assessment,
Placed on Review for Upgrade, currently A2(cr)
.... LT Counterparty Risk Rating, Placed
on Review for Upgrade, currently A3
.... ST Counterparty Risk Rating, Placed
on Review for Upgrade, currently P-2
.... LT Issuer Rating, Placed on Review
for Upgrade, currently Baa1, Rating Under Review From Stable
.... ST Bank Note Program, Placed on
Review for Upgrade, currently (P)P-2
.... Senior Unsecured Bank Note Program,
Placed on Review for Upgrade, currently (P)Baa1
.... Subordinate Bank Note Program,
Placed on Review for Upgrade, currently (P)Baa1
.... Subordinate Regular Bond/Debenture,
Placed on Review for Upgrade, currently Baa1
.... Other Short Term Medium-Term Note
Program, Placed on Review for Upgrade, currently (P)P-2
.... Senior Unsecured Medium-Term Note
Program, Placed on Review for Upgrade, currently (P)Baa1
.... Senior Unsecured Regular Bond/Debenture,
Placed on Review for Upgrade, currently Baa1, Rating Under
Review From Stable
.... LT Deposit Rating, Placed on Review
for Upgrade, currently A1, Rating Under Review From Stable
..Issuer: SunTrust Banks, Inc.
.... Issuer Rating, Placed on Review
for Upgrade, currently Baa1, Rating Under Review From Stable
.... Pref. Shelf Non-cumulative,
Placed on Review for Upgrade, currently (P)Baa3
.... Senior Unsecured Shelf, Placed
on Review for Upgrade, currently (P)Baa1
.... Subordinate Shelf, Placed on Review
for Upgrade, currently (P)Baa1
.... Pref. Stock Non-cumulative,
Placed on Review for Upgrade, currently Baa3 (hyb)
.... Subordinate Regular Bond/Debenture,
Placed on Review for Upgrade, currently Baa1
.... Senior Unsecured Medium-Term Note
Program, Placed on Review for Upgrade, currently (P)Baa1
.... Senior Unsecured Regular Bond/Debenture,
Placed on Review for Upgrade, currently Baa1, Rating Under
Review From Stable
..Issuer: SunTrust Capital I
....Pref. Stock, Placed on Review
for Upgrade, currently Baa2 (hyb)
..Issuer: SunTrust Preferred Capital I
....Pref. Stock, Placed on Review
for Upgrade, currently Baa3 (hyb)
..Issuer: SunTrust Real Estate Investment Corporation
....Pref. Stock Non-cumulative,
Placed on Review for Upgrade, currently Baa3 (hyb)
Outlook Actions:
..Issuer: BB&T Corporation
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: Branch Banking and Trust Company
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: National Commerce Capital Trust I
....Outlook, Changed To Rating Under
Review From No Outlook
..Issuer: National Penn Bancshares, Inc.
....Outlook, Changed To Rating Under
Review From No Outlook
..Issuer: SunTrust Bank
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: SunTrust Banks, Inc.
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: SunTrust Capital I
....Outlook, Changed To Rating Under
Review From No Outlook
..Issuer: SunTrust Preferred Capital I
....Outlook, Changed To Rating Under
Review From No Outlook
..Issuer: SunTrust Real Estate Investment Corporation
....Outlook, Changed To Rating Under
Review From No Outlook
..Issuer: Susquehanna Bancshares, Inc.
....Outlook, Changed To Rating Under
Review From No Outlook
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Allen Tischler
Senior Vice President
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
M. Celina Vansetti-Hutchins
MD - Banking
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
