Regions Financial's Ratings Downgraded to Stable by Moody's

The ratings of Regions Financial Corporation RF and its bank subsidiary, Regions Bank, have been affirmed by Moody’s Investors Service — the rating services arm of Moody's Corporation MCO. Notably, the outlook has been changed to stable from positive as a result of the Covid-19 outbreak.

Also, Moody’s affirmed the bank's baa1 stand-alone baseline credit assessment (“BCA”) and senior unsecured debt rating of Baa2. Also, for Regions Bank — A2/Prime-1 rating for deposits, A3(cr)/Prime-2(cr) counterparty risk assessments and the Baa1/Prime-2 counterparty risk ratings were affirmed.

The revision in outlook reflects Moody’s opinion that the U.S. economy will face a slowdown due to the coronavirus outbreak, which will likely impact the company’s asset quality and profitability.

Reasons Behind Ratings Affirmation

Per Moody’s, Regions Bank's BCA and the ratings for both Regions Financial and Regions Bank are reflective of their strong balance sheet position, particularly their strong liquidity and asset risk profiles, and improved core profitability.

Further, a well-diversified loan portfolio and prudent risk management help manage Regions Financial's risk profile. Moody's views the company's capital position as sound but it is relatively weak compared to its other rating factors.

The ratings agency is of opinion that the asset quality of Regions Financial might deteriorate as the U.S. economic activity is being affected by the coronavirus outbreak, notwithstanding the Federal Reserve's supportive policy measures. Also, Regions Financial's exposure to energy loans of 2.6% as of Dec 31, 2019, is likely to experience stress as a result of the sharp decline and volatility in oil prices.

Though the company displays a sound capital position, Moody's feels that capitalization is relatively weak compared to Regions Financial's other rating factors.

Further, a slowdown in economic activity and the interest rate cuts by the Federal Reserve to near-zero will likely keep Regions Financial's bottom line under pressure, with some respite from its hedging program and robust low-cost deposit base.

Factors That Might Trigger Change in Ratings

An upward ratings change can be brought if Regions Financial can maintain the asset quality, liquidity, capital position and profit levels at such difficult times.

However, signs of weakening in underwriting discipline or rebuilding of asset concentrations, such as commercial real estate, deterioration in asset quality and capitalization or profitability beyond Moody's current expectations could also lead to a ratings downgrade.

Shares of the company have lost 47.5% over the past six months compared with a 42.9% decline recorded by the industry it belongs to.

 

 

The stock currently carries a Zacks Rank #4 (Sell).

Also, the ratings agency has recently affirmed ratings for some other U.S. Banks, such as Raymond James Financial’s RJF and BOK Financial Corporation BOKF.

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