PRESS RELEASE: DBRS Confirms Citizens Financial Group, Inc. at 'A'; Trend Stable

9th Jul 2010 19:59

DBRS(R) As It Happens JULY 9, 2010 02:55 PM Press Releases (http://www.dbrs.com) DBRS Confirms Citizens Financial Group, Inc. at 'A'; Trend Stable DBRS has today confirmed all ratings of Citizens Financial Group, Inc. (Citizens or the Company) and its related bank subsidiaries, including Citizens' Issuer & Senior Debt rating at 'A.' The trend for all ratings is Stable. The ratings action follows a detailed review of the Company's operating results, financial fundamentals and future prospects. The ratings of Citizens, a wholly owned U.S. subsidiary of The Royal Bank of Scotland Group plc (RBS - rated 'A' with a Stable trend), reflect its important role in RBS' overall group strategy. Under RBS' announced restructuring plans, Citizens remains a core business and one that RBS is expected to continue to support. Indeed last year, RBS contributed $1 billion in subordinated debt that was subsequently converted into common equity. Moreover, another $2.3 billion in existing subordinated debt and preferred stock was converted into common equity, which significantly enhanced the Company's quality of capital and strengthened the balance sheet. The ratings also take into consideration a geographically diverse business and solid deposit franchise. These strengths are offset by below-peer profitability, a consumer-oriented loan portfolio and significant loan contraction. As a result of Citizens' core business position in RBS' overall franchise, DBRS has assigned a SA1 designation to the Company, which implies strong and predictable support from the parent. As a supported rating with a SA1 designation, Citizens' rating will move in tandem with RBS' ratings, which are currently Stable. Additionally, RBS has been designated a critically important banking organization (CIB), which benefits from the U.K. floor rating. Consequently, as long as DBRS continues to believe that RBS has the ability and motivation to support Citizens, there is no downside to the Company's ratings, as RBS is currently rated at the U.K. floor. In 2009, Citizens announced a five year strategic plan as part of the restructuring. The plan calls for the Company to be a top 5 player in the markets in which it operates and a top 10 player nationally. With already significant market positions from over 1,500 branches that span 12 states in the New England, Mid-Atlantic, and Midwest regions, DBRS believes these targets are achievable, but will be challenging, especially given the new focus on organic growth rather than acquisitions. Starting in 2013, the Company expects the restructuring to generate returns of approximately 15%. In 2009, Citizens had a $1.1 billion pre-tax operating loss compared to a pre-tax profit of $751 million in 2008 (excluding a goodwill impairment charge of $1.5 billion). Overall, the Company reported a net loss of $740 million compared to a net loss of $929.3 million in 2008. The loss was driven by deteriorating credit conditions that led to significantly higher loan loss provisioning needs. Indeed, Citizens' provision for credit losses totaled $2.8 billion compared to $1.9 billion in 2008. Most recently in 1Q10, the Company reported a net loss of $57.8 million on a regulatory data basis, as high credit costs persist primarily from the still problematic serviced-by-other (SBO) home equity portfolio. Credit remains weak, but overall levels of nonperforming assets (NPAs) and net charge-offs (NCOs) are tracking better than at many banks of similar size. Specifically, NPAs to gross loans and other REO reached 2.58% at the end of the first quarter compared to 2.44% at year-end and 1.35% in 1Q09. Meanwhile, NCOs declined to an annualized 2.36% of average loans, which was an improvement from 4Q09 when NCOs reached an annualized 2.84% of average loans. As part of the restructuring, Citizens has designated $17.8 billion in loans as non-core in nature, including the $5.6 billion (at December 31, 2009) SBO home equity portfolio. DBRS notes that the current SBO exposures to harder hit residential real estate markets of California and Florida are the Company's two highest at a combined 25% of the total SBO portfolio, which will likely keep credit costs elevated over the remainder of the year. Headquartered in Providence, Rhode Island, Citizens Financial Group, Inc. is a commercial bank holding company for RBS Citizens, NA and Citizens Bank of Pennsylvania. At March 31, 2010 Citizens reported $144.0 billion in assets. Notes: All figures are in U.S. dollars unless otherwise noted. The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations, and Enhanced Methodology for Bank Ratings -- Intrinsic and Support Assessments which can be found on our website under Methodologies. This is a Corporate (Financial Institutions) rating. Click here for the full document. (http://www.dbrs.com/intnlweb/document?docId=233843) Issuer DebtRated RatingAction Rating Trend Notes LatestEvent Citizens Financial Group, Inc. Issuer & Senior Debt Confirmed A Stb Jul 9, 2010 Citizens Financial Group, Inc. Short-Term Instruments Confirmed R-1 (middle) Stb Jul 9, 2010 RBS Citizens, National Association Deposits & Senior Debt Confirmed A Stb Jul 9, 2010 RBS Citizens, National Association Short-Term Instruments Confirmed R-1 (middle) Stb Jul 9, 2010 RBS Citizens, National Association Subordinated Debt Confirmed A (low) Stb Jul 9, 2010 Citizens Bank of Pennsylvania Deposits & Senior Debt Confirmed A Stb Jul 9, 2010 Citizens Bank of Pennsylvania Short-Term Instruments Confirmed R-1 (middle) Stb Jul 9, 2010 Michael Driscoll Vice President - U.S. Financial Institutions Group +1 212 806 3243 [email protected] Michael Schaller, CFA Assistant Vice President - U.S. Financial Institutions Group +1 212 806 3236 [email protected] Alan G. Reid Managing Director - Financial Institutions Group +1 212 806 3232 [email protected] ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS (http://www.dbrs.com/about/disclaimer) . ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON WWW.DBRS.COM (http://www.dbrs.com) . (END) Dow Jones Newswires July 09, 2010 14:59 ET (18:59 GMT)