Portafogli e Strategie (investimento) Investment Grade, entro le frontiere conosciute. (12 lettori)
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waltermasoni
Caribbean Trader
waltermasoni
Caribbean Trader
The Walt Disney Co. Ratings Remain On CreditWatch Negative Following Revised Offer For Twenty-First Century Fox Inc.
- 20-Jun-2018 16:18 EDT
- The Walt Disney Co. (Disney) has raised its offer to acquire certain
assets of New York City-based diversified media company Twenty-First
Century Fox Inc. (Fox). - Our ratings on Disney, including the 'A+/A-1+' corporate credit rating,
remain on CreditWatch with negative implications. - The revised offer could potentially increase the company's leverage to
the mid 3x-4x range at closing depending on the final set of Fox and Sky
assets it acquires, which is well above our 2x downgrade threshold for
the current rating. Therefore, we could lower our ratings on Disney by up
to three notches when we resolve the CreditWatch placement.
its ratings on California-based The Walt Disney Co. remain on CreditWatch,
where we placed them with negative implications on Dec. 14, 2017.
Disney announced a revised offer for Fox valued at an enterprise value of
approximately $85 billion, which is about $19 billion higher than Disney's
previous offer. Additionally, Disney revised the structure of the offer such
that it will pay 50% of the value with equity and 50% with cash, which is a
change from the company's previous all equity offer.
The CreditWatch negative placement reflects the uncertainty regarding the
final terms and structure of the FOX acquisition and the potential that
regulatory concessions will be required to complete the deal. We expect that
Disney's adjusted leverage will be in the mid 3x-4x range at the close of the
transaction depending on the specific assets it purchases, including whether
it acquires a 100% ownership stake in Sky or just the 39% that Fox currently
owns. If the company's leverage increases to the mid 3x-4x area, it will be
well above our 2x downgrade threshold for the rating. Therefore, we will
assess Disney's ability and willingness to reduce its leverage over time when
we resolve the CreditWatch placement and could potentially lower our ratings
on the company by up to three notches. A three-notch downgrade would likely be
accompanied by the company facing operational or cyclical challenges in its
media or parks segments, which would reduce the pace of leverage reduction.
We intend to resolve the CreditWatch placement once the acquisition closes, or
when the acquisition agreement is withdrawn. The magnitude of the potential
ratings impact could also be affected by any additional increases in Disney's
offer to acquire Fox and we will revise our CreditWatch implications
accordingly.
waltermasoni
Caribbean Trader
Fitch Affirms UBS Group at 'A+'; Stable Outlook
21 JUN 2018 4:36 PM ET
Fitch Ratings-London-21 June 2018: Fitch Ratings has affirmed UBS Group AG's Long-Term Issuer Default Rating (IDR) at 'A+' and UBS AG's and UBS Switzerland AG's (all three referred to as 'UBS group') Long-Term IDRs at 'AA-'. All three banks' Viability Ratings (VRs) are affirmed at 'a+'. The Rating Outlooks are Stable.
A list of all rating actions is at the end of this rating action commentary.
The rating actions have been taken in conjunction with Fitch's periodic review of the Global Trading and Universal Banks (GTUBs),.
KEY RATING DRIVERS
VRs
UBS AG and its subsidiary UBS Switzerland AG have common VRs, reflecting the parent/subsidiary structure and because we believe that the credit profiles of these two main operating entities will remain closely connected. UBS Switzerland AG's large size, with just under CHF300 billion total assets under Swiss GAAP, in relation to UBS AG's consolidated assets also drives the common VR.
The two entities continue to be closely integrated despite the gradual wind-down of the joint and several liability assumed for various contractual obligations. At end-1Q18, UBS Switzerland AG continued to assume joint liability for about CHF64 billion of contractual obligations of UBS AG. The joint liability of UBS AG for obligations of UBS Switzerland AG at the same date was immaterial.
The VRs reflect the UBS group's well-defined and implemented strategy to remain a leading global wealth manager, while maintaining a leading position in domestic retail and corporate banking activities and running a sizeable investment bank. The group has reduced its risk profile by tightening controls and outlining a clearly defined risk appetite. It has strengthened its balance sheet by building up capital and reducing tail risk by exiting businesses that it viewed as high-risk or no longer strategic. Funding and liquidity are strong and stable and benefit from the group's global wealth management operations, as well as a strong domestic retail and corporate banking franchise.
However, a factor of high importance in our assessment of the VR is the company profile, as its business model is complex and revenues are reliant on market sentiment and customer transaction volumes, both of which contribute to earnings volatility. This constrains the VR of UBS Group AG within the 'a' range because of the continued material weighting of capital markets within UBS's strategy, which consumes around one-third of the group's risk weighted assets and leverage exposure. The group's presence in this field represents a long-term strategy. Apart from having a sizeable standalone franchise, it also supports the group's leading global wealth management presence, particularly for ultra-high net worth families.
Market conditions in a number of UBS's businesses have shown some improvements on the back of US dollar interest rates, and improved consumer confidence, the latter supporting increased leveraging by clients. This has provided some boost to its USD-denominated wealth management business, including parts of Asia, as well as to its investment bank. On the other hand, European wealth management as well as domestic banking continue to face challenging conditions because of a low interest rate environment. The UBS group has been successful in reducing costs to address the pressure on margins, but we expect efficiency ratios to remain high. Nonetheless, the actions taken so far are likely to enable the group to generate robust and less volatile earnings, particularly as restructuring charges, which have been significant, subside.
Provisions for litigation, regulatory and similar matters have been material but have reduced. Fitch expects them to remain a drag on earnings, given pending legal cases and regulatory investigations. While the extent of further litigation costs is hard to predict, the ratings factor in our assumptions that the group's litigation reserves and capitalisation, if required, could absorb sizeable further misconduct and litigation costs.
21 JUN 2018 4:36 PM ET
Fitch Ratings-London-21 June 2018: Fitch Ratings has affirmed UBS Group AG's Long-Term Issuer Default Rating (IDR) at 'A+' and UBS AG's and UBS Switzerland AG's (all three referred to as 'UBS group') Long-Term IDRs at 'AA-'. All three banks' Viability Ratings (VRs) are affirmed at 'a+'. The Rating Outlooks are Stable.
A list of all rating actions is at the end of this rating action commentary.
The rating actions have been taken in conjunction with Fitch's periodic review of the Global Trading and Universal Banks (GTUBs),.
KEY RATING DRIVERS
VRs
UBS AG and its subsidiary UBS Switzerland AG have common VRs, reflecting the parent/subsidiary structure and because we believe that the credit profiles of these two main operating entities will remain closely connected. UBS Switzerland AG's large size, with just under CHF300 billion total assets under Swiss GAAP, in relation to UBS AG's consolidated assets also drives the common VR.
The two entities continue to be closely integrated despite the gradual wind-down of the joint and several liability assumed for various contractual obligations. At end-1Q18, UBS Switzerland AG continued to assume joint liability for about CHF64 billion of contractual obligations of UBS AG. The joint liability of UBS AG for obligations of UBS Switzerland AG at the same date was immaterial.
The VRs reflect the UBS group's well-defined and implemented strategy to remain a leading global wealth manager, while maintaining a leading position in domestic retail and corporate banking activities and running a sizeable investment bank. The group has reduced its risk profile by tightening controls and outlining a clearly defined risk appetite. It has strengthened its balance sheet by building up capital and reducing tail risk by exiting businesses that it viewed as high-risk or no longer strategic. Funding and liquidity are strong and stable and benefit from the group's global wealth management operations, as well as a strong domestic retail and corporate banking franchise.
However, a factor of high importance in our assessment of the VR is the company profile, as its business model is complex and revenues are reliant on market sentiment and customer transaction volumes, both of which contribute to earnings volatility. This constrains the VR of UBS Group AG within the 'a' range because of the continued material weighting of capital markets within UBS's strategy, which consumes around one-third of the group's risk weighted assets and leverage exposure. The group's presence in this field represents a long-term strategy. Apart from having a sizeable standalone franchise, it also supports the group's leading global wealth management presence, particularly for ultra-high net worth families.
Market conditions in a number of UBS's businesses have shown some improvements on the back of US dollar interest rates, and improved consumer confidence, the latter supporting increased leveraging by clients. This has provided some boost to its USD-denominated wealth management business, including parts of Asia, as well as to its investment bank. On the other hand, European wealth management as well as domestic banking continue to face challenging conditions because of a low interest rate environment. The UBS group has been successful in reducing costs to address the pressure on margins, but we expect efficiency ratios to remain high. Nonetheless, the actions taken so far are likely to enable the group to generate robust and less volatile earnings, particularly as restructuring charges, which have been significant, subside.
Provisions for litigation, regulatory and similar matters have been material but have reduced. Fitch expects them to remain a drag on earnings, given pending legal cases and regulatory investigations. While the extent of further litigation costs is hard to predict, the ratings factor in our assumptions that the group's litigation reserves and capitalisation, if required, could absorb sizeable further misconduct and litigation costs.
waltermasoni
Caribbean Trader
Fitch Revises Credit Suisse Group's Outlook to Positive; Affirms 'A-'
21 JUN 2018 4:29 PM ET
Fitch Ratings-London-21 June 2018: Fitch Ratings has revised the Outlooks on Credit Suisse Group AG's (CSGAG), as well as on its subsidiaries, Credit Suisse AG (CS), Credit Suisse (Schweiz) AG (CS Schweiz), and Credit Suisse International (CSI) to Positive from Stable. The Long-Term Issuer Default Ratings (IDRs) of CSGAG and CSI have been affirmed at 'A-' while those of CS Schweiz and Credit Suisse AG have been affirmed at 'A'.
A full list of rating actions is at the end of this rating action commentary.
The revision of the Outlooks to Positive reflects our expectation the group's Viability Ratings (VRs), and consequently Long-Term IDRs, could be upgraded within the next one to two years. This is because we expect the group's strategy will gradually result in an improving and less volatile performance as losses from the non-core Strategic Resolution Unit (SRU) shrink and large conduct issues have been resolved, thus reducing uncertainty. Cost reductions have been implemented ahead of original plans and we expect funding costs will fall as legacy instruments are redeemed and replaced at a cheaper cost in 2019. As a result, the bank should be able to maintain its target capitalisation, which in our view is in line with its risk profile. Most of its divisions are performing in line with internal expectations.
The rating actions have been taken in conjunction with Fitch's periodic review of the Global Trading and Universal Banks (GTUBs), which comprise 12 large and globally active banking groups.
KEY RATING DRIVERS
VR
CSGAG AND CS
CS accounts for substantially all of CSGAG's consolidated assets, and their Viability Ratings (VRs) are assessed on a consolidated basis.
The banks' VRs reflect the group's strong global wealth management franchise with material investment banking operations, and the second-largest universal banking presence in Switzerland. They also reflect, however, the high proportion of revenue generated by the group's trading, underwriting and advisory operations (43% of group revenue in the 12 months to March 2018) which exposes it to volatility and cyclicality and which, in our view has a strong weighting on our overall assessment of the group's profile and hence rating. CS has a particularly strong focus on fixed income instruments, and in particular, leveraged finance and credit, where activity can be cyclical. The bank's capacity to generate sustainable revenue growth in capital market activities remains, in our view, untested across a sufficient number of quarters and is a trigger for a rating upgrade.
We expect CS's earnings to show a material improvement by 2019, given the good record in non-core asset and cost reduction and plans for further reductions. Pre-tax losses from the SRU in 1Q18 were in line with the bank's guidance of USD1.4 billion for 2018 and USD500 million for 2019. Operating expenses of in 2017 were CHF3.2 billion (at end-2015 exchange rates) lower than in 2015, and are set to decrease by a further CHF1 billion per annum by end-2018.
The bank's strong wealth management franchise should allow this business to maintain its currently strong margins on assets under management, which should underpin earnings resilience.
The sophistication and enhanced governance of the group's risk controls is in our view proportional to the scope and size of the risks taken. CS has a sound franchise in and material exposure to US leveraged finance. Although the bank favours an underwrite and distribute philosophy, and losses have been minimal to date, we believe that a downturn in the leveraged finance market would have a larger impact on CS than peers, given the importance of these activities to the group's revenue and absolute exposure in relation to the group's equity. We expect the group's asset quality to remain sound, reflecting sound management of high-risk exposures and the low credit risk and adequate collateralisation of the Lombard and Swiss mortgage loan book
21 JUN 2018 4:29 PM ET
Fitch Ratings-London-21 June 2018: Fitch Ratings has revised the Outlooks on Credit Suisse Group AG's (CSGAG), as well as on its subsidiaries, Credit Suisse AG (CS), Credit Suisse (Schweiz) AG (CS Schweiz), and Credit Suisse International (CSI) to Positive from Stable. The Long-Term Issuer Default Ratings (IDRs) of CSGAG and CSI have been affirmed at 'A-' while those of CS Schweiz and Credit Suisse AG have been affirmed at 'A'.
A full list of rating actions is at the end of this rating action commentary.
The revision of the Outlooks to Positive reflects our expectation the group's Viability Ratings (VRs), and consequently Long-Term IDRs, could be upgraded within the next one to two years. This is because we expect the group's strategy will gradually result in an improving and less volatile performance as losses from the non-core Strategic Resolution Unit (SRU) shrink and large conduct issues have been resolved, thus reducing uncertainty. Cost reductions have been implemented ahead of original plans and we expect funding costs will fall as legacy instruments are redeemed and replaced at a cheaper cost in 2019. As a result, the bank should be able to maintain its target capitalisation, which in our view is in line with its risk profile. Most of its divisions are performing in line with internal expectations.
The rating actions have been taken in conjunction with Fitch's periodic review of the Global Trading and Universal Banks (GTUBs), which comprise 12 large and globally active banking groups.
KEY RATING DRIVERS
VR
CSGAG AND CS
CS accounts for substantially all of CSGAG's consolidated assets, and their Viability Ratings (VRs) are assessed on a consolidated basis.
The banks' VRs reflect the group's strong global wealth management franchise with material investment banking operations, and the second-largest universal banking presence in Switzerland. They also reflect, however, the high proportion of revenue generated by the group's trading, underwriting and advisory operations (43% of group revenue in the 12 months to March 2018) which exposes it to volatility and cyclicality and which, in our view has a strong weighting on our overall assessment of the group's profile and hence rating. CS has a particularly strong focus on fixed income instruments, and in particular, leveraged finance and credit, where activity can be cyclical. The bank's capacity to generate sustainable revenue growth in capital market activities remains, in our view, untested across a sufficient number of quarters and is a trigger for a rating upgrade.
We expect CS's earnings to show a material improvement by 2019, given the good record in non-core asset and cost reduction and plans for further reductions. Pre-tax losses from the SRU in 1Q18 were in line with the bank's guidance of USD1.4 billion for 2018 and USD500 million for 2019. Operating expenses of in 2017 were CHF3.2 billion (at end-2015 exchange rates) lower than in 2015, and are set to decrease by a further CHF1 billion per annum by end-2018.
The bank's strong wealth management franchise should allow this business to maintain its currently strong margins on assets under management, which should underpin earnings resilience.
The sophistication and enhanced governance of the group's risk controls is in our view proportional to the scope and size of the risks taken. CS has a sound franchise in and material exposure to US leveraged finance. Although the bank favours an underwrite and distribute philosophy, and losses have been minimal to date, we believe that a downturn in the leveraged finance market would have a larger impact on CS than peers, given the importance of these activities to the group's revenue and absolute exposure in relation to the group's equity. We expect the group's asset quality to remain sound, reflecting sound management of high-risk exposures and the low credit risk and adequate collateralisation of the Lombard and Swiss mortgage loan book
waltermasoni
Caribbean Trader
Fitch Revises Deutsche Bank's Outlook to Negative; Affirms at 'BBB+'
21 JUN 2018 4:23 PM ET
Fitch Ratings-London-21 June 2018: Fitch Ratings has revised Deutsche Bank AG's (Deutsche Bank) Outlook to Negative from Stable while affirming the bank's Long-Term Issuer Default Rating (IDR) at 'BBB+'. At the same time, Fitch has affirmed the bank's Short-Term IDR at 'F2', Viability Rating (VR) at 'bbb+', deposit ratings at 'A-'/'F2' and Derivative Counterparty Rating (DCR) at 'A-(dcr)'. All other debt ratings have also been affirmed.
The Negative Outlook reflects the substantial execution risk Deutsche Bank faces in implementing its restructuring and Fitch's view that failure to strengthen its business model would result in the bank's downgrade.
The rating actions have been taken in conjunction with Fitch's periodic review of the Global Trading and Universal Banks (GTUBs).
A full list of rating actions on the bank and its affected subsidiaries is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, VR, DCR, DEPOSIT AND SENIOR DEBT RATINGS
DEUTSCHE BANK
Deutsche Bank's ratings and the Negative Outlook reflect Fitch's view that the bank faces substantial execution risk in its restructuring, which aims to strengthen its business model, stabilise earnings and further strengthen risk controls. Failure to achieve the bank's modest profitability target of a 4% return on tangible equity (RoTE) in 2019 and continued improvements thereafter would put the bank's business model and strategy and management's ability to execute the strategy in question and would likely result in a downgrade. Deutsche Bank's capitalisation, funding and liquidity and asset quality underpin its VR.
The latest announced restructuring measures, which include reductions in resources allocated to its corporate and investment bank (CIB) and a shift towards private and commercial banking and asset management activities, should address the key weaknesses of its strategy in the past and help the bank achieve a more balanced business model over time. But the bank's performance in 2018 will be negatively affected by additional restructuring expenses and by likely pressure on revenue, and the bank's modest return target for 2019 highlights the challenges it faces. In the longer term, the bank's targeted RoTE of 10% requires a turnaround of its investment bank and achievement of cost synergies from the integration of Postbank, which will be challenging, and a more supportive interest rate environment, the timing of which remains uncertain.
Deutsche Bank's capitalisation with an end-1Q18 fully-applied common equity tier 1 (CET1) ratio of 13.4% supports the bank's ratings, and Fitch expects the bank to meet its target of maintaining a CET1 ratio above 13% during 2018. The bank's 3.7% fully-loaded regulatory leverage ratio at end-1Q18 lags behind its global trading and universal bank peers. Plans to scale back the US rates, securities financing transactions and prime finance businesses should reduce the leverage ratio denominator by about 10% by end-2019, which should result in a moderate improvement in the ratio.
The bank's liquidity position has remained comfortable, which is an important rating driver. At end-1Q18, the bank's liquidity portfolio amounted to EUR279 billion, covering around 37% of Deutsche Bank's external non-equity funding, excluding secured financing transactions, and the regulatory liquidity coverage ratio (LCR) stood at 147%, which was comparable with European peers'. The bank stated that its liquidity had remained at similar levels throughout April and May 2018.
Deutsche Bank's Derivative Counterparty Rating (DCR) and long-term deposit and preferred senior debt ratings are one notch above the IDR because derivatives, deposits and structured notes have preferential status over the bank's large buffer of qualifying junior debt and statutorily subordinated senior debt, which Fitch estimates at about 22% at end-1Q18. The short-term deposit and preferred senior debt ratings of 'F2' are the lower of the two short-term ratings that map to an 'A-' long-term rating as there are no clear liquidity enhancements at instrument level.
21 JUN 2018 4:23 PM ET
Fitch Ratings-London-21 June 2018: Fitch Ratings has revised Deutsche Bank AG's (Deutsche Bank) Outlook to Negative from Stable while affirming the bank's Long-Term Issuer Default Rating (IDR) at 'BBB+'. At the same time, Fitch has affirmed the bank's Short-Term IDR at 'F2', Viability Rating (VR) at 'bbb+', deposit ratings at 'A-'/'F2' and Derivative Counterparty Rating (DCR) at 'A-(dcr)'. All other debt ratings have also been affirmed.
The Negative Outlook reflects the substantial execution risk Deutsche Bank faces in implementing its restructuring and Fitch's view that failure to strengthen its business model would result in the bank's downgrade.
The rating actions have been taken in conjunction with Fitch's periodic review of the Global Trading and Universal Banks (GTUBs).
A full list of rating actions on the bank and its affected subsidiaries is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, VR, DCR, DEPOSIT AND SENIOR DEBT RATINGS
DEUTSCHE BANK
Deutsche Bank's ratings and the Negative Outlook reflect Fitch's view that the bank faces substantial execution risk in its restructuring, which aims to strengthen its business model, stabilise earnings and further strengthen risk controls. Failure to achieve the bank's modest profitability target of a 4% return on tangible equity (RoTE) in 2019 and continued improvements thereafter would put the bank's business model and strategy and management's ability to execute the strategy in question and would likely result in a downgrade. Deutsche Bank's capitalisation, funding and liquidity and asset quality underpin its VR.
The latest announced restructuring measures, which include reductions in resources allocated to its corporate and investment bank (CIB) and a shift towards private and commercial banking and asset management activities, should address the key weaknesses of its strategy in the past and help the bank achieve a more balanced business model over time. But the bank's performance in 2018 will be negatively affected by additional restructuring expenses and by likely pressure on revenue, and the bank's modest return target for 2019 highlights the challenges it faces. In the longer term, the bank's targeted RoTE of 10% requires a turnaround of its investment bank and achievement of cost synergies from the integration of Postbank, which will be challenging, and a more supportive interest rate environment, the timing of which remains uncertain.
Deutsche Bank's capitalisation with an end-1Q18 fully-applied common equity tier 1 (CET1) ratio of 13.4% supports the bank's ratings, and Fitch expects the bank to meet its target of maintaining a CET1 ratio above 13% during 2018. The bank's 3.7% fully-loaded regulatory leverage ratio at end-1Q18 lags behind its global trading and universal bank peers. Plans to scale back the US rates, securities financing transactions and prime finance businesses should reduce the leverage ratio denominator by about 10% by end-2019, which should result in a moderate improvement in the ratio.
The bank's liquidity position has remained comfortable, which is an important rating driver. At end-1Q18, the bank's liquidity portfolio amounted to EUR279 billion, covering around 37% of Deutsche Bank's external non-equity funding, excluding secured financing transactions, and the regulatory liquidity coverage ratio (LCR) stood at 147%, which was comparable with European peers'. The bank stated that its liquidity had remained at similar levels throughout April and May 2018.
Deutsche Bank's Derivative Counterparty Rating (DCR) and long-term deposit and preferred senior debt ratings are one notch above the IDR because derivatives, deposits and structured notes have preferential status over the bank's large buffer of qualifying junior debt and statutorily subordinated senior debt, which Fitch estimates at about 22% at end-1Q18. The short-term deposit and preferred senior debt ratings of 'F2' are the lower of the two short-term ratings that map to an 'A-' long-term rating as there are no clear liquidity enhancements at instrument level.
waltermasoni
Caribbean Trader
Fitch Upgrades Bank of America's LT IDR to 'A+'; Outlook Stable
21 JUN 2018 4:22 PM ET
Fitch Ratings-Chicago-21 June 2018: Fitch Ratings has upgraded Bank of America Corporation's (BAC) Long-Term Rating (IDR) to 'A+' from 'A' and affirmed the short-term IDR at 'F1.' The Rating Outlook is Stable.
The rating action has been taken in conjunction with Fitch's periodic review of the Global Trading and Universal Banks (GTUBs).
KEY RATING DRIVERS
IDRs, VR, SENIOR DEBT
BAC's rating upgrade was primarily driven by a sustained and improved risk adjusted earnings profile that has converged to higher-rated peers. Further, Fitch view BAC's risk appetite as materially improved since the financial crisis, and lower relative to many of its peers. The company's strong and improved franchise, and liquidity position and solid capital ratios are also reflected in the ratings.
BAC's ratings at their revised level are also supported by the strength of its domestic franchise reflecting a strong consumer banking and deposit franchise, its capital markets business, particularly debt underwriting, and its strong wealth management segment. BAC retains leading or near leading market shares in many categories, including retail deposits, mortgage originations, home equity and small business lending, U.S. wealth management, debt underwriting, and global research. Fitch believes that BAC is positioned well for the evolving digitization of the banking industry, and spending commensurately with this banking evolution.
BAC's liquidity position is a ratings strength that is supported by its retail deposit base. Over the past few years, BAC has reported the highest deposit growth of all U.S. banks demonstrating the strength of the bank's deposit franchise. BAC has the highest percentage of deposits to total funding relative to its U.S. peers and it has top three market share in states that comprise nearly 90% of its deposits. This market share strength translates into relatively low cost of deposits, with Fitch estimated realized deposit beta of just 16% to date, stronger than its U.S. GTUB peers and in line with the large regional average. Further, while its LCR is below the GTUB peer group average, we believe there is a higher level of retail deposits underpinning its funding profile. In addition, Fitch believes that the European bank balance sheets are less constrained by leverage requirements and can hold incremental liquidity with less significant capital consequences.
BAC's capital position remains solid for the company's rating level, though the Basel III Common Equity Tier 1 ratio (CET1) and the Fitch Core Capital ratio are below that of peer averages. Fitch attributes this in part to higher RWA density, which was the second highest in the GTUB peer group at March 31, 2018. Fitch notes that BAC's level of operational risk RWA is the highest in absolute and percentage terms, though RWA under both Standardized and Advanced Approaches are now essentially equal to one another. Based on the tangible common equity to tangible assets ratio, BAC had the highest ratio at year-end of the peer group. Even adjusting for netting differences between US GAAP and IFRS, BAC reports the strongest leverage ratio among the GTUBs, at year-end 2017.
Fitch continues to believe that credit metrics for BAC and the rest of the industry remain at or near cyclical troughs. In 1Q18, BAC's overall net charge-off (NCO) ratio remained low at 40 basis points, below that of JPM and Citi. While BAC's level of impaired loans to total loans is higher than the peer average, Fitch placed more emphasis on some of the complementary metrics given how U.S. banks account for troubled debt restructurings (TDRs). Fitch also looks at its core impaired loans ratio excluding accruing TDRs, which makes the ratio more comparable to international peers and more reflective of the bank's current asset quality. In addition, BAC compares well to peers on asset quality complementary metrics, notably the growth of total loans and loan impairment charges.
While BAC's overall earnings profile currently lags some higher-rated U.S. large regional bank peers and is less consistent, Fitch notes that there are certain regulatory rules that will continue to apply to BAC that will not apply to the large regional banks or likely will be applied, done so in a less onerous manner. As such, higher capital and liquidity requirements for BAC provide an added layer of creditor protection relative to less burdensome rules for smaller banks, and lend support to BAC's ratings.
We also note that BAC, along with many of its peers, continues to report one-time items, which has contributed to greater volatility in earnings for BAC relative to some peers. Today's rating action incorporates the previously disclosed estimated $800 million charge that BAC will take in 2Q18 related the redemption of higher cost trust preferred securities. BAC has yet to disclose its long-term earnings target since the tax legislation was passed, though Fitch notes that the company has forecasted the second lowest effective tax rates among its U.S. GTUB peers for 2018. Fitch also expects that BAC will report more consistent earnings in the future, which is in line with an improving trend in the consistency of earnings over time.
21 JUN 2018 4:22 PM ET
Fitch Ratings-Chicago-21 June 2018: Fitch Ratings has upgraded Bank of America Corporation's (BAC) Long-Term Rating (IDR) to 'A+' from 'A' and affirmed the short-term IDR at 'F1.' The Rating Outlook is Stable.
The rating action has been taken in conjunction with Fitch's periodic review of the Global Trading and Universal Banks (GTUBs).
KEY RATING DRIVERS
IDRs, VR, SENIOR DEBT
BAC's rating upgrade was primarily driven by a sustained and improved risk adjusted earnings profile that has converged to higher-rated peers. Further, Fitch view BAC's risk appetite as materially improved since the financial crisis, and lower relative to many of its peers. The company's strong and improved franchise, and liquidity position and solid capital ratios are also reflected in the ratings.
BAC's ratings at their revised level are also supported by the strength of its domestic franchise reflecting a strong consumer banking and deposit franchise, its capital markets business, particularly debt underwriting, and its strong wealth management segment. BAC retains leading or near leading market shares in many categories, including retail deposits, mortgage originations, home equity and small business lending, U.S. wealth management, debt underwriting, and global research. Fitch believes that BAC is positioned well for the evolving digitization of the banking industry, and spending commensurately with this banking evolution.
BAC's liquidity position is a ratings strength that is supported by its retail deposit base. Over the past few years, BAC has reported the highest deposit growth of all U.S. banks demonstrating the strength of the bank's deposit franchise. BAC has the highest percentage of deposits to total funding relative to its U.S. peers and it has top three market share in states that comprise nearly 90% of its deposits. This market share strength translates into relatively low cost of deposits, with Fitch estimated realized deposit beta of just 16% to date, stronger than its U.S. GTUB peers and in line with the large regional average. Further, while its LCR is below the GTUB peer group average, we believe there is a higher level of retail deposits underpinning its funding profile. In addition, Fitch believes that the European bank balance sheets are less constrained by leverage requirements and can hold incremental liquidity with less significant capital consequences.
BAC's capital position remains solid for the company's rating level, though the Basel III Common Equity Tier 1 ratio (CET1) and the Fitch Core Capital ratio are below that of peer averages. Fitch attributes this in part to higher RWA density, which was the second highest in the GTUB peer group at March 31, 2018. Fitch notes that BAC's level of operational risk RWA is the highest in absolute and percentage terms, though RWA under both Standardized and Advanced Approaches are now essentially equal to one another. Based on the tangible common equity to tangible assets ratio, BAC had the highest ratio at year-end of the peer group. Even adjusting for netting differences between US GAAP and IFRS, BAC reports the strongest leverage ratio among the GTUBs, at year-end 2017.
Fitch continues to believe that credit metrics for BAC and the rest of the industry remain at or near cyclical troughs. In 1Q18, BAC's overall net charge-off (NCO) ratio remained low at 40 basis points, below that of JPM and Citi. While BAC's level of impaired loans to total loans is higher than the peer average, Fitch placed more emphasis on some of the complementary metrics given how U.S. banks account for troubled debt restructurings (TDRs). Fitch also looks at its core impaired loans ratio excluding accruing TDRs, which makes the ratio more comparable to international peers and more reflective of the bank's current asset quality. In addition, BAC compares well to peers on asset quality complementary metrics, notably the growth of total loans and loan impairment charges.
While BAC's overall earnings profile currently lags some higher-rated U.S. large regional bank peers and is less consistent, Fitch notes that there are certain regulatory rules that will continue to apply to BAC that will not apply to the large regional banks or likely will be applied, done so in a less onerous manner. As such, higher capital and liquidity requirements for BAC provide an added layer of creditor protection relative to less burdensome rules for smaller banks, and lend support to BAC's ratings.
We also note that BAC, along with many of its peers, continues to report one-time items, which has contributed to greater volatility in earnings for BAC relative to some peers. Today's rating action incorporates the previously disclosed estimated $800 million charge that BAC will take in 2Q18 related the redemption of higher cost trust preferred securities. BAC has yet to disclose its long-term earnings target since the tax legislation was passed, though Fitch notes that the company has forecasted the second lowest effective tax rates among its U.S. GTUB peers for 2018. Fitch also expects that BAC will report more consistent earnings in the future, which is in line with an improving trend in the consistency of earnings over time.