NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms City National Bancorp (CYN) ratings at 'A-'/'F1'. The Rating Outlook remains Stable. The Stable Outlook incorporates assumptions that that asset quality will remain strong, earnings will face headwinds and capital levels will remain relatively stable. A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS - IDRS, VRs, AND SENIOR DEBT
CYN's rating ranks in the top quartile of the mid-tier banks group. The ratings reflect the company's strong franchise, relatively stable credit metrics through the cycle, good liquidity and capacity to improve earnings in a rising rate environment. These strengths are balanced against CYN's capital levels, which consistently rank in the bottom quartile relative to the mid-tier peer group.
CYN's value proposition to its customers is its focus on relationship banking and expertise in specialty lending. This somewhat niche strategy has created significant franchise value for the company. CYN's franchise value translates into one of the lowest deposit costs amongst the entire mid-tier bank group. Although the low rate environment has eroded CYN's comparative funding advantage in the near term, Fitch's rating incorporates the expectation that higher rates will be relatively more beneficial to CYN than its mid-tier peers over the medium term.
CYN's asset quality metrics remain solid. The company generated a net recovery for 2012 and 2013. This prolonged period of net recoveries is unique to CYN. Fitch views the net recoveries as an indicator of conservative marks on its problem assets and solid credit risk management practices.
RATING SENSITIVITIES - IDRS, VRs, AND SENIOR DEBT
While Fitch views CYN's capital levels as adequate, continued reductions to capital could result in negative ratings pressure. CYN's capital levels rank amongst the lowest relative to the mid-tier peer group. Although, capital levels are low on a relative basis, Fitch believes capital levels are adequate for its current rating. Conversely, if CYN managed its capital levels at higher levels, positive ratings momentum could build.
KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
CYN's preferred stock is notched below its Viability Rating (VR) to reflect loss severity and an assessment of increment non-performance risk.
RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
CYN's preferred stock rating is sensitive to changes in CYN's VR. Rating sensitivities for the VR are listed above.
SUBSIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS
City National Bank is a wholly owned subsidiary of CYN. City National Bank's ratings are aligned with CYN reflecting Fitch's view that the bank subsidiary is core to the franchise.
SUBSIDIARY AND AFFILIATED COMPANY RATING SENSITIVITIES
City National Bank's ratings are sensitive to changes to CYN's VR or any changes to Fitch's view of structural subordination between bank subsidiary and holding company. Rating sensitivities for the VR are listed above.
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
CYN's Support Rating and Support Rating Floor of '5' and 'NF' reflect Fitch's view that the company is unlikely to procure extraordinary support should such support be needed.
KEY RATING SENSITIVITIES- SUPPORT RATING AND SUPPORT RATING FLOOR
CYN's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.
Fitch reviewed CYN's ratings as part of the mid-tier regional bank review. The 19 banks in today's review include: Associated Banc-Corp. (ASBC), BOK Financial Corp. (BOKF), Cathay General Bancorp (CATY), City National Bancorp (CYN), Cullen/Frost Bankers, Inc. (CFR), East West Bancorp, Inc. (EWBC), First Horizon National Corp (FHN), First National of Nebraska, Inc. (FNNI), First Niagara Financial Group, Inc. (FNFG), First Republic Bank (FRC), First Merit (FMER), Fulton Financial Corp (FULT), Hancock Holding Company (HBHC), People's United Financial, Inc. (PBCT), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), UMB Financial Corporation (UMB), Webster Financial Corp. (WBS), Wintrust (WTFC).
Fitch has affirmed the following ratings with a Stable Outlook:
City National Corporation
--Long-term IDR at 'A-';
--Short-Term IDR at 'F1';
--Viability Rating at 'a-';
--Senior Unsecured at 'A-'
--Preferred Stock at 'BB'
--Support Floor 'NF'
--Support '5'.
City National Bank
--Long-term IDR at 'A-';
--Long-term Deposit at 'A';
--Short-Term IDR at 'F1';
--Short-Term Deposits at 'F1';
--Viability Rating at 'a-';
--Subordinated debt at 'BBB+';
--Market linked deposits at 'Aemr';
--Support Floor at 'NF';
--Support at '5'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--2014 Outlook: U.S. Banks (Nov. 21, 2013);
--U.S. Banks: Liquidity and Deposit Funding (Aug. 08, 2013);
--U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) (June 18, 2013);
--U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? (July 11, 2013);
--Global Trading and Universal Banks - Periodic Review (Dec. 12, 2013);
--Fitch Fundamentals Index - U.S.; Index Trend Analysis 4Q13 (Jan. 15, 2013);
--Risk Radar Global - Q313 (Sept. 05, 2013);
--Fitch Global Corporate Rating Activity – Third Quarter 2013 (Dec. 5, 2013);
--U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) (Jan. 27, 2014);
--Global Financial Institutions Rating Criteria (Jan. 31, 2014);
--Assessing and Rating Bank Subordinated and Hybrid Securities (Jan. 31, 2014).
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=819709
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