Wednesday, November 24, 2010

Cut to Junk

Bloomberg News

Regions Cut to Junk by S&P on Concern Over Funding

Nov. 23 (Bloomberg) -- Regions Financial Corp., the Alabama bank that replaced its risk managers last week, was downgraded to junk status by Standard & Poor’s Ratings Services on concern that more loan losses will erode the firm’s capital.

“The company’s financial flexibility has decreased somewhat in recent weeks, which could hurt its ability to access the debt and equity markets on favorable terms,” Robert Hansen, an S&P credit analyst, said in a statement today.

S&P cut Regions to BB+/B from BBB-/A-3, with a negative outlook, which means the rating could be lowered again. Regions Bank, the holding company’s main subsidiary, was cut to BBB-/A-3, S&P’s lowest investment-grade level. Last week, the Birmingham-based lender removed three managers who oversaw risk and troubled assets, prompting downgrades by Fitch Ratings and Moody’s Investors Service.

Regions last reported an annual profit in 2007, and since the start of last year has written off more than $3 billion in loans, mostly tied to developers, home builders and mortgage borrowers in Georgia and Florida. The shares fell 14 cents, or 2.6 percent, to $5.21 at 4:15 p.m. in New York Stock Exchange composite trading after an 11 percent decline last week.

“It looks like S&P swung the high-yield hatchet and did some damage to Regions’s financial flexibility in the process,” said Guy LeBas, chief fixed-income strategist and economist at Janney Montgomery Scott in Philadelphia. “Once a financial firm transitions from investment grade to crossover or high-yield, funding costs increase substantially, which in turn can impair a firm’s ability to earn income.”

Departures

Shares of Regions, Alabama’s biggest bank, are near their lowest levels this year after reaching $9.33 in April. Chief Risk Officer Bill Wells resigned and two other executives retired and left, Regions said last week.

“Regions has a ton of cash at the holding company level and they are about as flush in liquidity as any bank you could run up the flagpole,” said Marty Mosby III, an analyst at Guggenheim Securities LLC who has a “hold” rating on Regions. “They have $5 billion in excess capital before they would hit the minimum ratios.”

“The company is still seeing declines in commercial property valuations within its geographic footprint,” the S&P report said.

The bank had no comment on the S&P report, spokeswoman Evelyn Mitchell said.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net .