In a further sign of recovery in the thrift sector, Dime Bancorp's long-term and senior debt was upgraded last week to one notch below investment grade by Standard & Poor's.
"We saw further confirmation of improved operating performance" by the thrift's main subsidiary, said bank ratings analyst Glen Grabelsky.
The rating agency raised Dime Bancorp's rating to BB-plus from BB-minus. The ratings outlook for the holding company remains "positive," S&P said. The outlook of its subsidiary, Dime Savings Bank of New York, was upgraded to "positive" from "stable."
Standard & Poor's noted that Dime has continued to resolve earlier real estate problems and has realized benefits from mergers and acquisitions. It also has benefited from its balance sheet restructuring, which has permitted a reduction in the low-yielding mortgage-backed securities portfolio and repayment of high-cost wholesale funding.
Mr. Grabelsky said that the "large ratings differential" between the subsidiary and the holding company had stemmed from Dime's merger with Anchor Bancorp in 1995.
Anchor's savings bank had ratings a notch higher than Dime's holding company before they merged, he explained. Since that time the joined entity has proven that it can "upstream its dividends to the holding company without any difficulty," he said.
As a result, "we put in place the normal notching between the bank subsidiary and the bank holding company," Mr. Grabelsky said.
He said Dime still suffers some "residual impacts" of the real estate crisis of the late 1980s and early 1990s; low-yielding and nonperfoming assets continue to drag down profitability somewhat.
But he said the company has come a long way.
Analyst Eric Grubelich of Keefe, Buyette & Woods, who said that the upgrade is long over due, is doubtful that it will ignite upgrades for other northeastern thrifts.
"I think S&P is giving recognition to Dime's improving risk profile," he said.
"The upgrade will help their cost of issuing new debt and is a vote of confidence."
Dime may win an upgrade from Moody's Investors Service as well.
"We have them on positive outlook," said bank ratings analyst Tom Keller at Moody's. "Dime has found a focus and the new management changes and strategic decisions are now moving the company forward. We expect improved earnings."