New York, December 23, 2009 -- Moody's Investors Service placed under review for possible downgrade the
debt ratings of Associated Banc-Corp (subordinated debt at A3).
Moody's also placed under review for possible downgrade the lead bank's
ratings (B- for financial strength and A1 for long-term
deposits). The Prime-1 short-term ratings at both
the bank and holding company were also placed under review.
The review will focus on the implications of what Moody's expects will
be a prolonged period of meager earnings at Associated. Elevated
credit costs, primarily related to Associated's commercial real
estate portfolio, including its sizable construction book,
are likely to depress earnings through 2010, in Moody's view.
However, although Associated did engage in some commercial real
estate lending beyond its core Midwest footprint of Wisconsin, Illinois
and Minnesota, unlike many of its regional bank peers, it
does not have a large concentration in any Sunbelt states like Arizona
or Florida. That should somewhat limit its loan loss provisions.
Nonetheless, Associated's nonperforming assets (NPAs) have grown
at a rapid pace since year-end 2007 to the extent that at September
30, 2009 total NPAs were more than double the level of Associated's
loan loss reserves. In addition to its commercial real estate book,
Associated's commercial loan portfolio has also deteriorated noticeably
in 2009. These trends suggest a continued high level of loan loss
provisioning in future reporting periods that may exceed Associated's
above average pre-provision income.
The review will also incorporate the interrelationship between Associated's
potential need to downstream capital to its bank subsidiary and its parent
company liquidity profile. As disclosed in its third quarter 10-Q,
Associated's regulators have imposed a higher than otherwise applicable
capital requirement at its operating bank. Although Associated
is currently in compliance with those requirements, it may need
to downstream capital from the holding company to the bank depending upon
its level of loan losses going forward. That could weaken the holding
company's liquidly profile, though Moody's notes that Associated's
next holding company debt maturity does not come due until the summer
of 2011.
Moody's added that the most likely outcome is a one to two notch downgrade
of Associated's long-term ratings. Therefore, Associated's
bank-level short term rating, currently Prime-1,
was included in the review, since a two notch downgrade of Associated's
ratings would likely result in a Prime-2 short-term rating
at its operating bank.
Notwithstanding the review, Moody's noted that Associated's ratings
are supported by its core direct banking franchise in the Upper Midwest,
which generates strong pre-provision income, and its solid
deposit base and good operating efficiency.
Moody's last rating action on Associated was on March 12, when the
rating agency reiterated its negative rating outlook.
The principal methodologies used in rating this issuer were Moody's "Bank
Financial Strength Ratings: Global Methodology", published
in February 2007, and "Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: A Refined Methodology", published
in March 2007, and available on www.moodys.com in
the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
On Review for Possible Downgrade:
..Issuer: Associated Banc-Corp
....Multiple Seniority Shelf, Placed
on Review for Possible Downgrade, currently (P)Baa1, (P)A2
....Subordinate Medium-Term Note Program,
Placed on Review for Possible Downgrade, currently A3
....Subordinate Regular Bond/Debenture,
Placed on Review for Possible Downgrade, currently A3
....Senior Unsecured Commercial Paper,
Placed on Review for Possible Downgrade, currently P-1
..Issuer: Associated Bank, N.A.
....Bank Financial Strength Rating,
Placed on Review for Possible Downgrade, currently B-
....OSO Rating, Placed on Review for
Possible Downgrade, currently P-1
....Deposit Rating, Placed on Review
for Possible Downgrade, currently P-1
....OSO Senior Unsecured OSO Rating,
Placed on Review for Possible Downgrade, currently A1
....Multiple Seniority Bank Note Program,
Placed on Review for Possible Downgrade, currently A2, P-1
....Senior Unsecured Deposit Rating,
Placed on Review for Possible Downgrade, currently A1
Outlook Actions:
..Issuer: ASBC Capital I
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: ASBC Capital II
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: ASBC Capital III
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Associated Banc-Corp
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Associated Bank, N.A.
....Outlook, Changed To Rating Under
Review From Negative
Associated Banc-Corp, headquartered in Green Bay, Wisconsin,
reported total assets of $23 billion at September 30, 2009.
New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Allen H. Tischler
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's reviews Associated for possible downgrade (subordinated debt at A3)