Moody's upgrades Dime's debt, says it won't downgrade Anchor's.

Moody's Investors Service has decided not to downgrade the debt of Anchor Bancorp Inc. At the same time, it has upgraded the debt of Dime Savings Bank, Anchor's partner in a proposed merger that would create the nation's fourth largest thrift.

The decision, which comes a month after the merger announcement, affects about $100 million in debt at both companies.

In Anchor's case, Moody's had placed the New York thrift under review for possible downgrade because of the likelihood that the merger would hurt Anchor's asset quality.

Because the combination could improve prospects long term due to anticipated costcutting benefits, Moody's said it decided to keep Anchor's Ba3 debt rating intact.

"Moreover, the combined entity should benefit from an enhanced retail-banking franchise and better competitive position as a result of greater market share," Moody's wrote earlier this week.

"However, the combined entity faces the challenges of merging corporate cultures and back offices, and streamlining underwriting standards, while meeting the competitive response from others who have a funding advantage due to their superior capital strength."

The ratings review also noted that Anchor's regulatory capital ratio temporarily declined after its acquisition of Lincoln Savings Bank. but that Anchor should return to its "well-capitalized" status by year-end.

In Dime's case, Moody's lauded the New York City thrift for improvements in cutting non-performing loans through bulk sales: an equity sale that improved capital levels. and tighter cost controls.

Nonetheless, Moody's said that Dime's nonperformers are still troublesome and the thrift must manage the risk associated with its large portfolio of mortgage-backed securities as interest rates rise.

But the Anchor merge will offer increased cost cutting, an improved competitive position, and new asset- and fee-based revenues, the rating agency said.

Moody's upgraded, and placed under review for further upgrade, Dime's deposit rate, upgraded from B1 to Ba3; preferred stock rating, upgraded to b2 from b3; and senior obligations, increased from B3 to B2.

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