Fitch Ratings affirms the long-term and short-term debt and deposit ratings for People’s Bank of Connecticut. Concurrently, Fitch lowers the Individual rating to ‘C’ from ‘B/C’ and revises its Long-term Outlook to Negative from Stable. A detailed listing of the ratings is provided below.
People’s Bank has experienced some notable deterioration in its overall financial performance in recent years. Profitability trends have declined over the past several years to levels that are inconsistent with its current Individual rating. Returns have improved through the first six months of 2002 yet remain low relative to peer banking companies, with reported ROA and ROE ratios of 0.42% and 5.20% respectively. PBCT’s balance sheet mix composition skews towards commercial, commercial real estate and consumer loan exposures. In addition, PBCT funds about $1.7 billion in credit card receivables through off balance sheet securitizations. When the firm’s results are adjusted for this and ratios are viewed on a managed basis, the comparisons with peers are even more challenging. High operating costs and a poorly performing credit card portfolio continue to dampen profitability. Asset quality trends in the credit card portfolio have shown some improvement lately, but loss levels remain elevated and higher than many other standard/prime credit card issuers. PBCT currently is focused on improving asset quality in its card portfolio through stricter underwriting, improved collections tactics and marketing geared towards higher quality borrowers. Nevertheless, we expect growth to be slow and credit card quality to remain weak in the near to intermediate time horizon. Current ratings are supported by sound liquidity, capitalization, and asset quality in the Connecticut franchise (excluding credit cards), and a solid deposit franchise. Capital ratios appear sufficient to support both on and off balance sheet activities, as PBCT had a tangible equity/managed assets ratio of roughly 6.1% at 6/30/02.
The Negative Outlook reflects our opinion that PBCT’s ability to improve the performance of its credit card portfolio will be a significant challenge, especially if a strategic repositioning of the portfolio is unsuccessful. An inability to improve the performance in the card business will likely continue to depress the company’s financial performance and place pressure on the long term debt rating.