Fitch Downgrades Ratings for Bay View Capital Corp. and Subsidiaries.

Business Editors

CHICAGO--(BUSINESS WIRE)--Sept. 19, 2000

Fitch has downgraded the ratings for Bay View Capital Corporation (BVC) and its subsidiaries and has placed the ratings on Rating Watch Evolving. The long-term rating for BVC was lowered to `B' from `BB-', while the long-term rating for Bay View Bank N.A. (BVB) was lowered to `B+' from `BB-'. The ratings impacted by this action are outlined at the end of this release.

The current rating action is in response to BVC's announcement that it is closing its ill-fated Franchised Mortgage Acceptance Company (FMAC) unit, which was acquired in November 1999. FMAC's business model and heavy expense burden required substantial origination volume and ready access to the capital markets in order to sustain. Post-acquisition weakness in some of FMAC's prior securitization transactions led to reduced market confidence, requiring substantial increases in subordination levels and/or insurance premiums on future FMAC deals. The increased cost made it uneconomical for BVC to securitize these loans. As a result, BVC has been forced to portfolio these loans and hold substantial capital against the outstanding balances. The loans generate decent spread income, but spreads are reduced by the increased capital charge.

BVC announced that it has retained Merrill Lynch to explore strategic options for the company, which included the potential sale of the FMAC business. A lack of interest in FMAC led management to close down the operation. BVC will take a third quarter 2000 charge of between $11-14 million and most likely will write off the $192.7 million in goodwill associated with the transaction. All production and marketing-related personnel have been terminated -- roughly 140 people in total. BVC will continue to service the remaining $1 billion in franchise loans on its books as well as loans previously securitized as it continues to look for opportunities to reduce both portfolios.

The deteriorating fundamental performance has resulted in the bank entering into a `Letter Agreement' with the OCC and Federal Reserve Bank. The `Letter Agreement' requires the bank to submit a budget and capital plan to regulators and to receive approval on any dividends flowing out of the bank, including dividends flowing up to the holding company to service parent company obligations. Management has stated that it expects profitability to improve in fourth quarter 2000 and does not anticipate any interruption in dividends to the holding company. However, the holding company's dependence on the bank to service its debt and the marginal profitability of the bank have substantially increased the risk of parent company obligors.

The rating action reflects this increased risk profile and general deterioration in underlying fundamentals at the bank. BVC was relying on FMAC to generate asset growth and improved profitability. The absence of this business raises the question of where asset growth will come from and how future growth will be funded. In addition, the performance of the franchise loan portfolio as it seasons presents some risk in light of the asset quality problems surfacing in prior securitizations. Fitch intends to maintain the Rating Watch Evolving status until we are comfortable with the company's budget, capital plans and ability to generate improved profitability.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in over 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Banks, Corporations, Structured Finance, Insurance, Sovereigns and Public Finance Markets worldwide. -0-

Old Ratings -- Rating Watch

Bay View Capital Corporation
    Long-term senior `BB-' Negative
    Subordinated debt `B+' Negative
    Individual `C'
    Support `5'

Bay View Capital Trust I
    Trust preferred `B' Negative

Bay View Bank, N.A.
    Deposit obligations `BB+' Negative
    Non-deposit obligations `BB-' Negative
    Subordinated debt `B+' Negative
    Short-term obligations `B' Negative
    Individual `C'
    Support `5'

New Ratings -- Rating Watch

Bay View Capital Corporation
    Senior Implied `B' Evolving
    Subordinated debt `B-' Evolving
    Individual `C'
    Support `5'

Bay View Capital Trust I
    Trust Preferred `B-' Evolving

Bay View Bank, N.A.
    Deposit obligations `BB' Evolving
    Non-deposit obligations `B+' Evolving
    Subordinated debt `B' Evolving
    Short-term obligations `B' Evolving
    Individual `C'
    Support `5'