Moody's Investors Service has downgraded its credit rating on First Niagara Financial Group (FNFG), citing concerns about the Buffalo banking company's asset quality, profitability and capital levels.

Moody's lowered its rating on the $37.6 billion-asset company and its subsidiaries from Baa2 to Ba1. Companies rated Ba by Moody's are judged to be "speculative" and are subject to "substantial credit risk."

Moody's said that First Niagara's originated problem loans have grown almost as rapidly as its overall originated loans since the end of 2011, while most banks' asset quality has improved since then. "This suggests that [the company] is more vulnerable to asset quality deterioration if the economy weakens," Moody's said in the report issued Thursday, approximately three months after it first warned First Niagara of a possible downgrade.

The report also raised concerns about the bank's rapid deposit growth stemming from its 2012 acquisition of more than 100 HSBC branches in upstate New York and Connecticut. That deal reduced the bank's ratio of loans to deposits, threatening its profitability in a low interest rate environment, Moody's stated.

Capital levels are also a concern. At the end of last year, its Tier 1 leverage ratio was 7.26%, compared to a median of 10.48% for peer institutions, Moody's said.

"Lower capital levels decrease the company's ability to weather increased credit losses that would accompany asset quality deterioration," Moody's said in the report.

Moody's added that it does not expect First Niagara's capital ratios to improve because its common dividend payout ratio is 42%. Furthermore, improvements in capitalization could reduce the bank's return on equity, the ratings agency said.

Despite the long-term downgrade, First Niagara's rating outlook remained stable because of the company had a 121% core deposits to average gross loans ratio through the end of 2013, which was better than the median percentage of 115 for peer institutions.

First Niagara's shares were $9.24 late Friday, down 1.6% from Thursday's close. 

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