S&P Move Bank Of Butterfield ICR To ‘BBB’

April 30, 2015

Standard & Poor’s Ratings Services said it lowered its long-term issuer credit rating [ICR] and senior unsecured debt rating on the Bank of N.T. Butterfield & Son, Ltd. [BNTB] to ‘BBB’ from ‘BBB+’. At the same time, Standard & Poor’s affirmed its ‘A-2′ short-term ICR on the bank. The outlook is stable.

“Our downgrade of BNTB primarily reflects yesterday’s downgrade of Bermuda, with our ratings on both issuers now lower by one notch,” said Standard & Poor’s credit analyst Nikola Swann.

“We continue to view our ICR on BNTB as incorporating a “moderately high” likelihood of extraordinary government support from Bermuda. This reflects BNTB’s high systemic importance, as Bermuda’s second-largest bank; it also reflects our unchanged opinion that Bermuda’s government has a “supportive” tendency toward its private-sector banks.

“Nevertheless, our downgrade of Bermuda implies a somewhat weaker credit benefit to BNTB from this likelihood, which we now recognize through one notch of uplift to our stand-alone credit profile [SACP] on BNTB, rather than the two notches previously applied.

“Our SACP on the bank is unchanged, at ‘bbb-’, reflecting what we view as offsetting developments in two of its component factors: improvements in risk position; offset by deterioration in capital ratios largely as a result of the company’s announced share buy-back.

“Our opinion that BNTB’s risk position has improved reflects its sustained outperformance of other Bermuda banks in terms of loan performance in recent years, and our expectation that this will continue.

“For example, BNTB’s December 2014 year-end gross nonperforming assets, as a share of customer loans and other real estate owned, were less than one-third of those at HSBC Bank Bermuda, Ltd., Bermuda’s largest bank and BNTB’s primary competitor in the Bermudian loan market. Furthermore, by this measure, BNTB’s asset-quality has substantially and increasingly outperformed its Bermudian peers since 2010.

“On the other hand, in our opinion, the impending withdrawal of Canadian Imperial Bank of Commerce  from BNTB’s key-shareholder group, as announced on April 27 and primarily via BNTB’s repurchase by April 30, 2015 of about US$120 million worth of common shares held by CIBC, represents a substantial capital outflow for BNTB, and a deterioration in our forward-looking assessment of its capital buffers.

“The outlook is stable. Were BNTB to retain sufficient capital to increase, and preserve, a RAC ratio meaningfully above 10%, and were we to become convinced that this would be sustained, we would likely raise our ratings, other things unchanged. Were BNTB’s asset quality to deteriorate to such an extent as to become substantially less distinguishable from its Bermudian peers, we would likely lower our ratings, other things unchanged.

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Comments (2)

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  1. Ouch says:

    Isn’t this the wake up call that we all need here on our little Island to stop bickering and stand TOGETHER to fix this country’s economic mess.

    The international markets see exactly the state this country is in–we on the other hand would rather sit here and blame one another instead of taking a mature and leadership approach to problem identifaction and resolution.

    The more we act like “crabs in a bucket” the worse this will get.

    REMINDER–the BDA GVT and NTB downgrade is circulating in the international media and it is resonating.

    SO–can we stop the bickeing and join to fix this disaster that we find ourselves in please?

  2. Independent Observer says:

    The knock on effect. Not good for Bermuda as other organisations will see downgrades because of yesterday’s ratings action!