CHICAGO, May 19 /PRNewswire/ -- The following statement was issued today
by Fitch IBCA and Duff & Phelps Credit Rating Co.:
In anticipation of the closing of the merger of Fitch IBCA and
Duff & Phelps Credit Rating Co. (DCR), a uniform rating methodology,
applicable to U.S. banking organizations, has been finalized. We will, as a
general practice, differentiate ratings by instrument or seniority position
that will incorporate our expectations of timeliness of payment, as well as
severity of loss and recovery potential. The combined company will maintain a
rating differential for uninsured deposits, which will be the highest rating
accorded to a banking organization. The senior ratings for the bank and bank
holding company would be equalized and will normally be one notch below the
uninsured deposit rating. Finally, the subordinated debt ratings for the bank
and bank holding company would also be equalized at one notch below the senior
rating.
In most cases, preferred and trust preferred ratings will be equalized
with the subordinated debt rating. This hierarchy will be applied to the
majority of our rated banking universe. However, a handful of highly
leveraged companies will likely be accorded a wider rating differential
between senior and subordinated instruments, and specialized financial
services providers that operate through bank charters, but do not conduct
traditional bank activities, will most likely not be accorded an uninsured
deposit differential.
The revised bank ratings methodology represents compression in the ratings
within the typical organization structure, eliminating the ratings distinction
between the bank holding company and its constituent banks. As a result,
there is a narrowing of ratings between the most senior instrument
(uninsured deposits) and the most junior one (trust preferred). As we
implement this revised methodology, we expect existing bank level instruments
to be equalized at the existing and lower holding company level in most
instances. Factors supporting our perspective include the conduct of higher
risk activities directly at the bank level, increased reliance on wholesale
funding sources at the bank level, and reliance of bank level subordinated
debt to meet regulatory capital thresholds. Credit risk profiles of banks and
holding companies have become more similar. We also continue to note reduced
debt-financed double leverage levels industrywide and a significantly lower
reliance on dividends from banking subsidiaries to service parent debt
obligations. Combined with regulatory changes in recent years, we believe
that general bank level creditors have assumed greater risks than had been
factored into our previous ratings.
The basis of this ratings methodology was previously published on
December 9, 1999, under two separate reports, Questioning Conventional Wisdom
and Understanding U.S. Bank Failures. Both reports are available on the
Fitch IBCA Web site (http://www.fitchibca.com). Upon the expected completion of the
merger of Fitch IBCA and DCR in early June, the alignment of ratings will
incorporate this new ratings hierarchy.
SOURCE Duff & Phelps Credit Rating Co. and Fitch IBCA
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Related links:
http://www.dcrco.com
CONTACT:
Glen Grabelsky of Fitch IBCA, 212-908-0577;
or James E. Moss of Duff & Phelps Credit Rating Co., 312-368-3213
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