(The following statement was released by the rating agency)
Oct 10 - Fitch Ratings has affirmed BancWest Corporation's (BWE) Long-term Issuer Default Rating (IDR) at 'A'. The Rating Outlook on the Long-term IDR is Stable. Fitch has also affirmed the ratings of the subsidiary banks, Bank of the West (BOW) and First Hawaiian Bank (FHB). A full list of rating actions follows at the end of this release.
Today's rating action on BWE was taken in conjunction with Fitch's Global Trading and Universal Bank (GTUB) review. As part of this review, the IDRs of BNP-Paribas
(BNPP), BWE's ultimate parent, were affirmed at 'A+/F1+'.
RATING ACTION AND RATIONALE
The IDRs of BWE and its subsidiary banks are linked to that of their 100% owner, BNPP. Fitch believes that BWE is a strategically important subsidiary to BNPP because of the strong propensity and ability to support and explicit capital support that has been provided to BWE.
The viability ratings of the subsidiary banks reflect better asset quality, a solid customer funding base, and stronger capitalization. Profitability has been pressured by a reduced net interest margin in a low interest rate environment but has benefited from lower impairment charges and an improved operating cost structure.
Because of a regulatory capital exemption (expiring in 2015) at the holding company due to its ownership, BWE has historically operated with weak equity measures. During June 2012, BNPP injected $2.2 billion in common equity into BWE; the cash proceeds were used to repay short-term debt owed to the parent and other affiliates. BWE's Fitch Core Capital Ratio improved to 9.90% at June 30, 2012 from 5.72% at Dec. 31, 2011 with regulatory capital measures similarly growing. In addition to owning 100% of BWE, BNPP holds the vast majority of outstanding debt. Management anticipates that BWE will exceed all regulatory capital standards through retained earnings but has not ruled out conversion of more debt to equity.
Since peaking at end-2010, non-performing assets (including accruing TDRs) have improved to 2.29% of gross loans and foreclosed property at June 30, 2012 with most of the improvement coming at Bank of the West. First Hawaiian Bank's asset quality has been historically very good. Reserve coverage similarly improved to 75% at BWE. Net credit losses declined measurably to 0.67% of average loans (on an annualized basis) for the first half of 2012 compared with 1.01% in 2011.
BWE's return on assets grew to 0.79% (annualized) in the first half of 2012 compared with 0.67% in 2011 as weaker margins were offset by lower impairment charges. Part of new provisions during the most recent period was associated with the transfer of a portion of non-performing loans held for sale. BWE benefited from modest gains on sale of securities and a reduction in operating costs in the first half of 2012.
RATING DRIVERS AND SENSITIVITIES - IDRs and VRs
The IDRs of BWE and its subsidiaries are linked to that of BNPP. Should the IDR of BNPP be upgraded, it is likely that the IDRs of BWE would be upgraded. Since the IDR of BNPP is at its Support Rating Floor and has a Stable Outlook, it will not likely be downgraded unless the ability or propensity to support of the French sovereign diminishes. Although not viewed as likely in the near term, if BWE becomes less strategically important to BNPP, its IDR could be downgraded.
Fitch believes that the VRs have limited upside in the near term. However, continued strengthening of capital at the holding company, consistent credit improvement and sustained earnings commensurate with higher rated peers could positively affective the VR in the medium term. Conversely, negative pressure on the VR could occur should current positive credit trends materially reverse and credit losses escalate and/or core earnings deteriorate from current levels.
BancWest Corporation had $78.7 billion in total assets at June 30, 2012 with over 700 offices in the Western United States, principally in California and Hawaii.
The following ratings have been affirmed:
BancWest Corporation --Long-term IDR at 'A'; Outlook Stable; --Short-term IDR at 'F1'; --Support Rating at '1'. Bank of the West--Long-term IDR at 'A'; Outlook Stable; --Short-term IDR at 'F1'; --Viability rating at 'a-'; --Support rating at '1'; --Long-term deposits at 'A+'; --Short-term deposits at 'F1'. First Hawaiian Bank --Long-term IDR at 'A'; Outlook Stable; --Short-term IDR at 'F1'; --Viability rating at 'a-'; --Support rating a '1'; --Long-term deposits at 'A+'; --Short-term deposits at 'F1'.
Additional information is available at '
'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Aug. 15, 2012); --'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012).
Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria Rating FI Subsidiaries and Holding Companies (New York Ratings Team)