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 NEW YORK, Aug. 25 /PRNewswire/ -- The ratings on Shawmut Corp.'s $150 million in 8.875 percent senior notes due 1996 and $100 million in 8.125 percent senior notes due 1997, both guaranteed by Shawmut National Corp., are raised to `BBB-' from `BB+' by Fitch and removed from FitchAlert, where they were placed with positive implications on Dec. 17, 1992. The credit trend is improving.
 The upgrade reflects the improved financial condition of the New England-based banking company. During the 12 months ended June 30, 1993, nonperforming assets (NPAs) declined $862 million, reducing the company's NPA ratio to 3.84 percent from 10.35 percent, and increasing reserve coverage of nonperforming loans to 146 percent from 91 percent. While much of the reduction in problem assets was accomplished through chargeoffs and a special writedown taken to facilitate a bulk sale of real estate assets, Fitch believes Shawmut will be able to work through its remaining NPAs without adding significantly to existing reserves.
 In addition, Shawmut's capital ratios, although still below peer levels, improved significantly during the past 18 months, largely due to issuance of common stock in April 1992 and preferred stock in November 1992. As a result, equity-to-assets, Tier 1, and total risk-based capital ratios each rose more than 150 basis points to 6.1 percent, 7.3 percent, and 11.6 percent, respectively, since year-end 1991. Furthermore, both of Shawmut's bank subsidiaries meet the regulatory definition of well capitalized institutions.
 While core profitability is improving, Shawmut still remains burdened by a costly overhead structure. During 1993's first half, the overhead ratio was among the industry's highest, at 80.6 percent. Consequently, Shawmut's pretax core ROA was only 0.86 percent, even though credit-related expenses consumed only 15 percent of gross operating revenues compared with 30 percent for all of 1992. While a cost-reduction program initiated during 1993's first quarter and lower foreclosed property expenses should strengthen profitability going forward, Shawmut's earnings are not likely to approach those of its regional competitors in the near term.
 Pressure to boost profitability has led to changes in Shawmut's funding strategy. As a result of Shawmut's drop in its deposit rates in New England, core deposits declined $923 million, or 6.0 percent during 1993's first quarter alone, increasing the company's reliance on wholesale sources to fund its short-term investments portfolio. As of June 30, repos and purchases of Fed funds totaled $7.0 billion, or 29 percent of liabilities, compared with $1.4 billion, or 6 percent, at year-end 1990. While this practice is not uncommon, the extent to which Shawmut has inflated its balance sheet through such activity raises some concern, particularly when most regional banks are building capital and aggressively pursuing more stable core deposits.
 -0- 8/25/93
 /CONTACT: Christopher M. Siedman, 212-908-0524, or Scott J. O'Donnell, 212-908-0531, both of Fitch/

CO: Shawmut Corp. ST: Massachusetts IN: FIN SU: RTG

MP -- NY028 -- 0295 08/25/93 11:13 EDT
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Publication:PR Newswire
Date:Aug 25, 1993

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