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Gerald Host, Trustmark's CEO, expressed confidence in his company's purchase of BancTrust despite some analysts' concerns about the seller's weak deposit positions in key Alabama markets.
May 29
Fitch Ratings has lowered its outlook on Trustmark Corporation (TRMK) from "stable" to "negative" following Jackson, Miss., company's announcement Tuesday that it is
In a news release Thursday, Fitch said that it has revised its outlook because it believes the $9.8 billion-asset Trustmark is overpaying for the troubled BancTrust and that the acquisition will have a negative impact on Trustmark's capital and future earnings.
It also noted that the deal for the $2 billion-asset BancTrust would boost Trustmark's assets above $10 billion, subjecting it to additional regulations that include caps on interchange fees it can collect from debit card transactions.
BancTrust put itself up for sale earlier this year after announcing a $50 million loss in the fourth quarter and disclosing that its plan to raise capital by selling shares to two private-equity groups had fallen through.
Trustmark said this week it would pay $55 million for BancTrust as well as pay off the $50 million BancTrust owes to the Treasury Department's Troubled Asset Relief Program. Factoring in the Tarp repayment, Fitch estimates the price is roughly 1.7 times book value, which it views as "expensive given [BancTrust's] weakened financial condition."
Fitch also said that while the deal would give Trustmark decent market share in Alabama, it comes at a steep cost to capital. It estimates that the sale, expected to close in the fourth quarter, would reduce Trustmark's total risk-based capital by 250 basis points and suspects it could take the bank up to two years to rebuild its capital base.
"Failure to rebuild capital in line with projections could lead to pressure on [Trustmark's] ratings," Fitch said.
Analysts expressed similar concerns in a conference call with Trustmark executives Tuesday, with one suggesting that it could take up to five years to earn back the capital it will use to by a bank that has suffered steep losses on real estate loans in recent years.
But its chief executive, Gerard Host, said that the company would still be very well capitalized after it completes the deal and he noted that Trustmark has a proven track record of managing real estate assets in a down economy.
He also pointed out that the deal would give the Trustmark a foothold in the robust Mobile market and that BancTrust's 40 branches in Alabama would fill in a wide gap in its branch network. Trustmark has 170 branches in Mississippi, Texas, Tennessee and Florida, but none in Alabama.
