CHICAGO - (Business Wire) Fitch Ratings has downgraded the long-term Issuer Default Rating (IDR) of National Consumer Cooperative Bank (NCCB) and its subsidiary NCB, FSB (FSB) to 'B' from 'BB-' and the ratings remain on Rating Watch Negative following the review of the company's recent financial disclosure showing substantial asset quality deterioration. Approximately $1.5 billion of debt is affected by this action. A complete list of ratings is provided at the end of this release. Fitch's downgrade reflects severe asset quality deterioration that has occurred over the past quarter, increased provisioning driving a net loss of $21.7 million on a consolidated basis for the three months ended Sept. 30, 2009 versus breakeven for the comparable period in 2008 and a negative trend in capitalization. Fitch is concerned that the company's weak profitability will make addressing impaired loans more challenging. Total criticized loans increased to $210.1 million at Sept. 30, 2009 from $120 million at Dec. 31, 2008. In addition, non-performing assets increased to $100.6 million at Sept. 30, 2009 from $17.4 million at Dec. 31, 2008. Fitch believes based on current capital levels and asset quality deterioration NCB will need to raise capital but could be challenged based on the cooperative business model and current capital market condition.
Near-term operating performance is expected to continue to be negative as impaired loans continue to be a drag on earnings. In the current economic environment, many middle market businesses that NCCB lends to in the healthcare, franchise, and hardware markets are facing financial difficulties. NCCB's overall portfolio is expected to shrink reducing net interest income, while the provision for losses is expected to remain high relative to historical levels. This increases the likelihood of another unprofitable year and further reduction of capitalization in 2010. FSB's current capital ratios are comparable to other similarly rated banks and remains 'Well Capitalized' in accordance with regulatory guidelines.
Fitch has downgraded the Individual ratings of NCCB and FSB to 'D/E' and 'D', respectively. The Individual ratings of NCCB and FSB have been differentiated primarily to reflect the better funding and capitalization profile of FSB relative to NCCB. Although NCCB is a government sponsored enterprise (GSE), Fitch does not consider the potential for support in the rating. The downgrade of the trust preferred rating to the 'CC/RR6' level reflects Fitch's view that the risk of deferral is heightened as a result of increased capital needs.
On Nov. 16, 2009, NCCB entered into amendments of the forbearance agreements which extended the forbearance period through Feb. 17, 2010. Fitch understands that the company is working on potential solutions to the forbearance but the longer the resolution takes the increased probability of potential default exists. Based on the amount of assets available for repayment on the debt under forbearance, Fitch views the prospects for recovery in the 90%-100% range and assigns a Recovery Rating (RR) of '1' to the secured debt.
Fitch will resolve the Negative Rating Watch upon satisfactory resolution of the forbearance which is expected early February 2010. Further negative rating actions could result from continued deterioration in asset quality, lack of improvement in capitalization ratios and/or negative liquidity needs driven by resolution of forbearance. Until a further agreement is reached with the banks under the revolving credit facility, NCB does not have access to the revolving line of credit. FSB continues to have access to Federal Home Loan Bank Advances and the Federal Reserve.
Fitch has downgraded the following ratings and the ratings remain on Rating Watch Negative:
National Consumer Cooperative Bank
--Long-term IDR to 'B' from 'BB-';
--Individual to 'D/E' from 'D'.
NCB, FSB
--Long-term IDR to 'B' from 'BB-';
--Long-term deposit obligations to 'B+/RR3' from 'BB+';
--Individual to 'D' from 'C/D'.
NCB Capital Trust I
--Trust preferred stock to 'CC/RR6' from 'CCC'.
Fitch also rates the following ratings which remain on Rating Watch Negative:
National Consumer Cooperative Bank
--Senior secured debt 'BB/RR1'
--Short-term IDR 'B'.
NCB, FSB
--Long-term deposits 'BB+';
--Short-term IDR 'B';
--Short-term deposit obligations 'B'.
Fitch rates the following:
National Consumer Cooperative Bank
--Support '5';
--Support floor 'NF'.
NCB, FSB
--Support '5';
--Support floor 'NF'
Additional information is available at www.fitchratings.com.
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Fitch Ratings
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