UNION BANK NOTES LOWERED TO 'A', LOCs TO 'A/F-1' BY FITCH -- FITCH FINANCIAL WIRE --
UNION BANK NOTES LOWERED TO 'A', LOCs TO 'A/F-1' BY FITCH
-- FITCH FINANCIAL WIRE --
NEW YORK, Jan. 13 /PRNewswire/ -- Union Bank's 7.35 percent subordinated capital notes are lowered to 'A' from 'A+' by Fitch and its letters of credit to 'A/F-1' from 'A+/F-1+.' Approximately $30 million in debt is affected. The credit trend is declining.
The action reflects the declining performance of Union Bank's $2 billion real estate construction portfolio, which impaired earnings in 1991 and the outlook for 1992. Union Bank's construction loans outstanding at Sept. 30 represented 17 percent of total loans, with another 6 percent in commercial mortgages. Although management took aggressive provisions in 1991's third quarter, resulting in 86 percent reserve coverage of nonperforming assets, Fitch expects the California real estate market to face further pressures in 1992.
While asset quality trends are weakening, the bank continues to have sound capital and reserves to offset problems. In fact, typically smaller individual loan exposures along with traditionally conservative underwriting standards should moderate losses. The bank does not participate in syndicated real estate loans but does have some large developer exposures. Additionally, the bank has nominal exposure to the more deeply troubled hotel/motel sector in Los Angeles. Other parts of the loan portfolio continue to perform satisfactorily.
Funding and liquidity remain stable. Nonetheless, the bank's historical wholesale focus has resulted in relatively higher dependence on purchased funds. Strategically, management has been reducing this reliance through the purchase of deposits of failed thrifts from the Resolution Trust Corp., and expanding its branch network in retail outlets.
The Bank of Tokyo, which holds a 77 percent interest in Union Bank, remains an important factor in the rating in terms of implicit capital support and direct business links. Union Bank's strong middle market franchise provides products to numerous Japanese corporates which have ties to Bank of Tokyo. Similarly, Union Bank is a key component of Bank of Tokyo's international network. Union Bank represents a modest 6% of Bank of Tokyo's $252 billion in total assets.
Profitability is expected to be lower because of higher provisions related to accelerated charge-offs. Union Bank's net interest margin has come under pressure from the drag of nonperforming assets, but remains a healthy 5 percent. With a liability-sensitive position, prevailing interest rates provide a partial offset to declining asset yields.
/CONTACT: Fay Y. Wong, 212-908-0531, or Ricardo J. Kleinbaum, 212-908-0525/ CO: Union Bank ST: California IN: FIN SU: RTG SB -- NY076 -- 9191 01/13/92 16:01 EST