Tuesday, March 19, 2013

BB&T outlook lowered to 'negative' after capital plan rejection

BB&T is feeling the impact of the Federal Reserve’s objection to its capital plan: Standard & Poor’s has lowered its outlook for the bank from stable to negative.

In announcing the move Monday, S&P cited both the Fed’s objection last week to the Winston-Salem-based bank’s capital plan and S&P’s own concerns about “weakness” in the way the bank manages risk.

A bank’s rating outlook is different from its overall credit rating. S&P affirmed its “A-minus” rating for BB&T.

A company rated A-minus is considered by S&P to be above investment grade. But, S&P said, if more “deficiencies in risk management” surface for BB&T, the agency could lower the bank’s credit rating.

In an emailed response to the Observer, BB&T said its A-minus rating makes it “the second-highest rated regional bank in the country. The rating outlook, which is designed for investors, does not mean a credit rating will change.”

BB&T was one of two banks -- the other was Ally Financial -- that did not get the green light Thursday from the Fed to increase dividends or buy back stock after a review of the 2013 capital-distribution plans of 18 major U.S. banks. BB&T must now resubmit its capital plan to the Fed.

The Fed’s opposition to BB&T’s plan came after the bank passed a federal “stress test” that analyzed how the capital levels of the 18 banks would fare in a severe economic downturn. The Fed and BB&T have not provided specifics on the “qualitative” reasons that led to its objection to the bank’s plan.

But this month BB&T revealed in its annual report that it had to re-evaluate its calculation for risk-weighted assets. Specifically, the bank has changed the weights it assigns to some unfunded lines of credit to businesses.

BB&T’s need to change the calculation led Moody’s Investors Service earlier this month to downgrade its outlook for the bank from stable to negative.

Allen Tischler, a senior vice president for Moody's, told the Observer Tuesday that BB&T is “an otherwise healthy” bank.

S&P, in its report Monday, said BB&T’s calculation adjustment might have hurt its chances of winning the Fed’s approval for its capital plan.

The Fed did not object to the capital plans of Bank of America or Wells Fargo. Bank of America plans to buy back $5 billion in shares as part of its 2013 capital plan.

S&P rates Bank of America at A-minus and Wells Fargo at A-plus. The agency has had a negative outlook for both banks since 2011.

Tischler declined to speculate on what Moody's might do when it comes to BB&T’s outlook or rating if the bank fails to get Fed approval for a resubmitted capital plan. But another objection from the Fed “would raise questions” about the bank “and could undermine franchise value,” he said.