Moody's Lifts Debt Ratings Of 3 Banks

The tide is finally turning for three banks in the West.

Since last Friday, Moody's Investors Service has raised its credit ratings on debt of Valley National Corp., Zions Bancorp., and Affiliated Bankshares of Colorado.

Except for the commercial paper rating for Fleet/Norstar Financial Group Inc. in June, Moody's has announced no other ratings improvements this year. And the latest moves came just as the pace of downgrades was slowing.

Emerging from Problems

"What you're dealing with in all three of these situations are old problems that are getting better," said Katharine Rossow, a senior analyst at Moody's. "These are banks who encountered problems four or five years ago and are now crawling out from under."

Improved earnings power and better control of nonperforming assets did the trick for Valley National, Phoenix. Although reserves cover only 44% of Valley's nonperforming assets, the rating agency figures earnings will more than offset costs.

"Real estate problems in Arizona in general do seem to at least have been identified," Ms. Rossow said.

Valley National's holding company ratings are now just two notches below those of its principal bank subsidiary, Valley National Bank. The narrowing differential reflects the healthier outlook for the whole institution, Ms. Rossow said.

When an institution is very weak, Federal Deposit Insurance Corp. backing at the bank level and its absence at the holding company level take on more importance in ratings. For stronger institutions, the insurance is of less concern.

Reserves Were Bolstered

Higher levels of reserves against bad assets prompted the upgrade of Salt Lake City-based Zions Bancorp., Ms. Rossow said. Reserves now represent 96% of nonperforming assets, up from 56% in 1988. In addition, nonperforming assets have declined as a share of loans and other real estate owned.

Affiliated Bankshares, Denver, has also boosted its reserves relative to its nonperforming assets, although the absolute level remains low. Its reserves are now 44% of assets, compared with 31% at the end of 1988.

A Differing Opinion

Analysts at Standard & Poor's Corp. agree that the outlook for two of the three western banks is improving slightly. But so far, they have not indicated that rating changes are imminent.

Affiliated Bankshares is typical. "Anything negative that could happen to the company has happened," said credit analyst Peter Lannigan of Standard & Poor's. "The company is on the mend." S&P currently rates Affiliated's senior debt BB, a level equivalent to the new Moody's rating.

Standard & Poor's is moderately positive on Zions. The bank has a better grip on credit quality, according to Daniel Martin, an assistant vice president at the rating agency.

But Mr. Martin is not so sanguine about Valley National. He is concerned about the Resolution Trust Corp.'s need to sell a large amount of Arizona real estate and the effect of those sales on the market. "Longer term, Valley will come back, but there is still significant risk remaining," he said.

Moody's Investors Service and Standard & Poor's Corp. announced they are reviewing their ratings on NCNB Corp. and C&S/Sovran Corp. NCNB is under consideration for a downgrade, while C&S ratings could rise. The review follows a merger announcement between Charlotte, N.C.-based NCNB and Atlanta-based C&S/Sovran, which now has the lower rating.

Continental Bank Corp. has adopted a shareholder rights plan designed to ward off unwanted suitors. Under the plan, if a person acquires more than 20% of Continental's shares without the approval of the Chicago bank's board, every other shareholder would receive one right for each share owned, entitling to buy stock at half price.

A Continental spokeswoman said the plan was not adopted in response to an unsolicited bid but to "catch up with the competition." She said other banks have similar plans in place.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.