NEW YORK -- Moody's Investors Service Inc. confirmed the debt ratings of First Union Corp. and its major bank subsidiaries and put the ratings of Dominion Bankshares on review for possible upgrade.
These actions followed the announcement of a merger agreement between the companies. About $2.5 billion of securities are affected, Moody's said.
Moody's said its Baal rating of First Union's long-term debt "incorporated the risk of additional acquisitions as the company continues to expand its franchise in major markets of the Southeast."
Moody's said its primary concern with the Dominion transaction is the company's sizable $1 billion commercial real estate portfolio.
"Dominion's CRE concentration further increases First Union's exposure to troubled real estate markets in the Southeast," Moody's said.
The rating agency noted that 68% of First Union's $1.1 billion of nonperforming assets at June 30 was commercial real estate-related, and that many of those assets are located in the stillweak Florida market.
"Offsetting this risk is an apparent stabilization of First Union's asset quality as nonperforming assets declined to 3.4% in the second quarter, from their peak of approximately 4.4% in the first half of 1991," Moody's said.
The agency placed Dominion Bankshares under review for possible upgrade. The rating agency lowered Dominion's long-term debt rating to Bal in February, citing the potential for further asset deterioration.