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Fitch Affirms BBVA Compass Bancshares, Inc.'s L-T IDR at 'BBB+'; Outlook Stable
May 17, 2017 / 9:01 PM / 3 months ago

Fitch Affirms BBVA Compass Bancshares, Inc.'s L-T IDR at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, May 17 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) for BBVA Compass Bancshares, Inc. (BBVAC) at 'BBB+' and Viability Rating (VR) at 'bbb'. The Rating Outlook is Stable. This action follows Fitch's recent rating action on BBVAC's parent company, Banco Bilbao Vizcaya Argentaria SA (BBVA). Refer to Fitch's press release "Fitch Affirms BBVA at 'A-'; Outlook Stable" (dated April 28, 2017) for additional information on the BBVA rating action. A full list of rating actions follows at the end of this press release. KEY RATING DRIVERS IDRS AND SENIOR DEBT BBVAC's Long-Term IDR reflects the higher of its support-driven IDR or its standalone rating, the VR. BBVAC's support-driven IDR is 'BBB+', while its stand-alone rating or VR is 'bbb'. BBVAC's institutional support-driven IDR is higher than its VR, which reflects the parent's ability and propensity to provide support to BBVAC. BBVAC accounts for approximately 12% and 11% of consolidated parent assets and revenues, respectively. BBVAC's IDR is notched down one time from the parent's IDR of 'A-' reflecting its role in the group, the level of integration, the full ownership stake, and the support track record. VR BBVAC's VR, which reflects the company's intrinsic creditworthiness absent any extraordinary support, was affirmed at 'bbb' primarily reflecting the company's solid capital position, and still relatively good asset quality profile - despite energy-related asset quality deterioration that began impacting ratios in late 2015/early 2016. The ratings are constrained primarily by a weaker earnings profile. Capital remains solid, with a Common Equity Tier 1 under Basel III of 11.77%, on a transitional basis, up roughly 110bps from a year ago. This remains above the large regional bank peer median. BBVAC's capital requests have been modest to date, with relatively small dividends upstreamed to the parent. The company has one of the lowest total payouts in the peer group, incorporating only dividend payments. Fitch expects BBVAC to manage its capital profile conservatively given a weaker earnings profile. Excluding energy-related exposure, asset quality continues to remain relatively good. Fitch notes that NPAs, inclusive of accruing troubled debt restructurings, were somewhat higher than the peer median at year-end 2016, while NCOs remained around the average. Asset quality measures have been impacted by BBVAC's energy-related loan book, which has been declining and totaled around 4.8% of loans at March 31, 2017. Fitch expects some deterioration in asset quality for BBVAC, as well as the industry, from unsustainably low current levels. Offsetting these rating drivers, BBVAC's earnings performance continues to lag the average for large regional banks in the U.S. and is considered a key VR constraint by Fitch. BBVAC ROA in 2016 was just 41bps, as compared to the peer average (excluding BBVAC) of approximately 95bps. However, BBVAC's earnings profile is in line with other FBOs, who tend to lag large regional peers due to generally higher funding costs, greater reliance on spread income, and higher efficiency ratio. SUPPORT RATING AND SUPPORT RATING FLOOR BBVAC's Support Rating of '2' reflects the parent's ability and propensity to support BBVAC. BBVAC's support-driven IDR has historically been one notch below BBVA, reflecting Fitch's view that BBVAC is strategically important to BBVA, though not core. Since BBVAC's support reflects institutional support, there is no Support Rating Floor assigned. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid securities issued by BBVAC and by various issuing vehicles are all notched down from BBVAC's or its bank subsidiaries' VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles. HOLDING COMPANY BBVAC's IDR and VR are equalized with those of Compass Bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. LONG- AND SHORT-TERM DEPOSIT RATINGS BBVAC's uninsured deposit ratings are rated one notch higher than the company's Long-Term IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default. RATING SENSITIVITIES IDRS AND SENIOR DEBT Since BBVAC's ratings and Outlook are correlated with those of BBVA, changes in BBVA's ratings may result in changes to BBVAC's IDRs and Outlook. Given BBVAC's VR is at 'bbb', downward rating actions may be limited to just one notch, as BBVAC's VR would become the anchor for its IDR, absent any changes to the company's VR. VR Over the medium- to long-term, Fitch envisions limited VR upgrade potential given the bank's earnings profile. A downgrade to the VR would occur if BBVAC began to manage its capital more aggressively; however, given BBVAC's recent CCAR capital requests and historical dividend practices, this is viewed as unlikely. Further, Fitch expects that while the company's energy-related exposure is expected to continue to affect asset quality measures over the near term, it is not expected to impair capital. If capital erosion occurs because of elevated loan losses or other reasons, BBVAC's VR could be impacted. Fitch expects loan losses will deteriorate from currently unsustainably low levels, but outsized losses, particularly in the energy book, that reduce capital by more than 50bps could pressure ratings. However, over the more medium to long term, BBVAC's VR could be upgraded with improving earnings performance, combined with the continuation of moderating asset quality and the maintenance of capital at appropriate levels. SUPPORT RATING AND SUPPORT RATING FLOOR If Fitch views BBVAC as no longer strategically important to BBVA, the bank's support rating could be downgraded. If the support rating were downgraded, BBVAC's VR would likely become the anchor rating for the IDR. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES These ratings are all primarily sensitive to any changes in BBVAC's VR. HOLDING COMPANY Should BBVAC's holding company begin to exhibit signs of weakness, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR down from the ratings of Compass Bank. LONG- AND SHORT-TERM DEPOSIT RATINGS The ratings of long- and short-term deposits issued by BBVAC and its subsidiaries are primarily sensitive to any change in BBVAC's Long- and Short-term IDRs. Fitch has affirmed the following ratings: BBVA Compass Bancshares, Inc. --Long-term IDR at 'BBB+'; Outlook Stable. --VR at 'bbb'; --Support at '2'; --Short-term IDR at 'F2'. Compass Bank --Long-term IDR at 'BBB+'; Outlook Stable; --Long-term deposits at 'A-'; --Senior unsecured at 'BBB+'; --Short-term IDR at 'F2'; --VR at 'bbb'; --Short-term deposits at 'F2'; --Support at '2'; --Subordinated debt at 'BBB-'. TexasBanc Capital Trust I --Preferred stock at 'BB-'. Contact: Primary Analyst Julie Solar Senior Director +1-312-368-5472 Fitch Ratings, Inc. 70 West Madison St. Chicago, IL 60602 Secondary Analyst Bain Rumohr Associate Director +1-312-368-3153 Committee Chairperson Justin Fuller Senior Director +1-212-908-2057 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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