New York, April 20, 2021 -- Moody's Investors Service, ("Moody's") has placed on
review for downgrade all the ratings and assessments of Webster Financial
Corporation and Webster Bank, N.A, including its a3
standalone Baseline Credit Assessment (BCA) with the exception of the
Prime-1 short-term deposit rating and the Prime-2
short-term counterparty risk rating, which were affirmed.
The rating action follows Webster's announcement that it will merge with
New York-based Sterling Bancorp in an all-stock transaction.
During the review, Moody's will assess the implications of the merger
for the existing creditors of Webster, including the associated
integration risks from merging two similarly sized institutions with different
business profiles.
On Review for Downgrade:
.. Issuer: Webster Bank N.A.
.... Adjusted Baseline Credit Assessment,
Placed on Review for Downgrade, currently a3
.... Baseline Credit Assessment, Placed
on Review for Downgrade, currently a3
.... Long term Counterparty Risk Assessment,
Placed on Review for Downgrade, currently A2(cr)
.... Short term Counterparty Risk Assessment,
Placed on Review for Downgrade, currently P-1(cr)
.... Long term Counterparty Risk Rating,
Placed on Review for Downgrade, currently A3
.... Long term Deposit Rating, Placed
on Review for Downgrade, currently A1, Outlook changed to
Rating Under Review from Stable
.... Issuer Rating, Placed on Review
for Downgrade, currently Baa1, Outlook changed to Rating Under
Review from Stable
.. Issuer: Webster Financial Corporation
.... Issuer Rating, Placed on Review
for Downgrade, currently Baa1, Outlook changed to Rating Under
Review from Stable
.... Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently Baa1, Outlook changed
to Rating Under Review from Stable
.... Senior Unsecured Shelf, Placed
on Review for Downgrade, currently (P)Baa1
.... Subordinate Shelf, Placed on Review
for Downgrade, currently (P)Baa1
.... Pref. Stock Shelf, Placed
on Review for Downgrade, currently (P)Baa2
.... Pref. Stock Non-cumulative
Shelf, Placed on Review for Downgrade, currently (P)Baa3
.... Pref. Stock Non-cumulative,
Placed on Review for Downgrade, currently 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 Rating Under
Review From Stable
.. Issuer: Webster Financial Corporation
.... Outlook, Changed To Rating Under
Review From Stable
RATINGS RATIONALE
The initiation of the review on the ratings and assessments for Webster
follows the bank's announcement that it will merge with Sterling in an
all-stock transaction. The proposed merger will create a
Northeast regional bank with assets of approximately $63 billion.
Webster's shareholders will own approximately 50.4%
of the combined company, and it will operate under the Webster brand.
Moody's has placed Webster's ratings on review for downgrade because its
proposed merger with Sterling is a large undertaking and Sterling itself
is the product of a number of recent acquisitions. In addition
to the large operational and integration challenges, Webster's
pro forma estimates include sizeable share repurchases in 2022 and management
is guiding towards a lower capitalization following the close of the merger.
Despite the risks presented by this large merger, Moody's recognizes
that the merger will expand Webster's footprint into contiguous New York
markets, provide meaningful scale and broaden its deposit base and
loan portfolio. However, Moody's noted that Sterling has
a sizeable commercial real estate (CRE) concentration estimated at 3.9
times its tangible common equity (TCE) base at 31 December 2020.
On a combined basis, Moody's estimates Webster's CRE
concentration post acquisition will be 3.1 times its TCE base.
Furthermore, until Sterling has been fully integrated, Webster's
risk profile will be heightened, particularly as the economic fallout
from the coronavirus pandemic is not yet fully known. The review
will also evaluate whether the acquisition suggests Webster has a greater
risk appetite than previously considered.
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 2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
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 business profiles, including operational,
particularly IT and cultural fit.
Given the direction of the ratings review, rating upgrades are unlikely
upon completion of the review. Webster's BCA and ratings
could be confirmed upon conclusion of the review if Moody's were to assess
that the benefits from the merger would result in a more diversified bank
without an increase in risk profile and that the integration risks were
adequately mitigated.
The principal methodology used in these ratings was Banks Methodology
published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
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
Asst. Vice President - 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
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
