Fitch Affirms U.S. AgBank's L-T IDR at 'AA-'; Outlook Stable.
AgBank's asset quality has held up well through recent economic challenges. At June 30, 2010, one association wholesale loan was classified as special mention due to pressure in the dairy sector. Fitch believes this exposure is manageable given adequate reserve and capital levels at the association level and recent improvements in the dairy sector. Approximately 96% of the bank's loan portfolio is loans to its affiliated associations, which significantly mitigates direct credit risk to AgBank, as the associations' reserves for loan losses and capital buffer would need to be exhausted before AgBank would experience losses on this lending.
In March 2010, AgBank's board approved a plan to determine whether merging with another Farm Credit Bank (FCS) is a better long-term strategy for the bank. The decision to pursue a combination or continue in its current form is expected in the fourth quarter 2010. Fitch believes either outcome should not materially impact AgBank's current ratings.
AgBank is a Farm Credit Bank and is one of five banks in the FCS (rated 'AAA/F1+' by Fitch). While AgBank and FCS are not guaranteed by the U.S. government, Fitch believes that if the FCS were in need of support, it is extremely likely that it would be provided; and in fact, such support was demonstrated in the 1980s. However, such support may not extend to obligations of any single FCS bank, a factor considered in AgBank's rating. The benefit gained through its ability to access capital markets through a GSE channel is also a factor considered in the rating. AgBank has adopted prudent risk management and corporate governance standards enabling it to minimize risk concentrations.
The Stable Outlook reflects Fitch's view of AgBank's ability to manage through the potential stress resulting from economic conditions and weakness in select agricultural sectors. While AgBank's asset quality metrics could come under pressure, the adequate capital and reserve levels, including those of its affiliated associations, are significant risk buffers. The ratings also reflect Fitch's view of FCS's continued GSE status and political support for the agricultural industry which has been an important factor for consistent and favorable access to the capital markets.
Fitch has affirmed the following:
--Long-term IDR at 'AA-';
--Short-Term IDR at 'F1+';
--Preferred Stock at 'A';
--Support at '1';
--Support Floor at 'A-'.
The Rating Outlook is Stable.
Additional information is available at www.fitchratings.com.
This rating action reflects the application of Fitch's current criteria which is available on Fitch's web site at www.fitchratings.com and specifically includes:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);
--'Rating Hybrid Securities' (Dec. 29, 2009);
--'Evaluating Corporate Governance' (Dec. 12, 2009).
In addition to the source(s) of information identified in the Master Criteria, this action was additionally informed by information provided by the company.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Rating Hybrid Securities
Evaluating Corporate Governance
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|Date:||Sep 15, 2010|
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