Fitch downgrades Regions Financial ratings

CHICAGO - Fitch Ratings analysts downgraded Regions Financial Corp. on Monday saying the company's credit costs are rising and its credit quality continues to deteriorate.

The long-term issuer default rating was downgraded one notch to "BBB+" from "A-" and the rating outlook was negative. The rating is still considered investment grade.

The company, based in Birmingham, Ala., is likely to see increased credit stress in its homebuilder and Florida home equity portfolios, as well as in its commercial real estate book, Fitch analysts said.

Recent deterioration levels exceeded Fitch's original projections.

Analysts said commercial real estate market fundamentals continue to weaken and they're concerned about Regions' exposure, including construction loans, which make up 39 percent of total loans. That's a larger exposure than similarly rated peers, Fitch said.

Elevated credit costs are likely to remain a considerable drag on earnings for the foreseeable future, the analysts said.

The company has recently improved its capital base by raising $2.5 billion in response to government regulators' stress test, Fitch said. In addition, it continues to maintain a significant amount of borrowing capacity, and a large level of liquid assets.

The analysts said they view the company's capital and liquidity resources as sufficient to withstand anticipated stress within the context of expectations for an investment grade company.

Regions Financial has 2,000 branches in 16 states across the South, Midwest and Texas.

It addition to banking, it provides investment banking, asset management, trust, mutual funds, and securities brokerage services through its Morgan Keegan subsidiary.

Regions Financial shares rose 11 cents, or 2.3 percent, to $4.86 in afternoon trading Monday.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.