Fitch Takes Negative Rating Actions on 8 Banks on Home Equity Losses

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has taken a variety of rating actions on eight banking companies. The rationale and specific rating actions are detailed at the end of this release. In late 2007, Fitch highlighted concerns with consumer lending, and home equity in particular, as part of the rationale for assigning a Negative Rating Outlook to the U.S. banking industry. Recent developments and information Fitch has gained from a variety of internal and external sources suggest that evidence of deterioration within home equity portfolios will clearly emerge in first-quarter 2008 (1Q08), which is earlier than Fitch previously expected. More important, pressures from home equity portfolios may very well exceed Fitch's expectations at the time the Negative Outlook was assigned to the industry. For many firms the necessity of having to grapple with heightened deterioration in the consumer portfolio comes at a time when they are still working through the challenges in other portfolios that, in many cases, contributed to earlier negative rating actions by Fitch.

Indications from rated banks in the past few weeks suggest that home equity delinquency rates are rising at a far more rapid pace than even most bankers' and analysts' grim outlook for 2008 had anticipated. Further, because of continued pressure on home prices, particularly in key markets such as California and Florida, severities (the percentage of the loan balance that is uncollectible) are rising and are often 100%. Certainly, in higher loan-to-value situations, it is often less costly for the bank to charge-off the entire amount, albeit retaining the lien against the property, than it is to go through the foreclosure process. Fitch anticipates that banks will significantly ratchet up loan loss provisions against home equity loans in 1Q08 and provisioning levels for 2008 will likely be much higher than 2007 overall, as deterioration in other consumer portfolios is also likely.

Loans with certain key characteristics are generally exhibiting more stress. Chief among these is the origination channel. Typically, loans originated through brokers or third parties are performing considerably worse than loans with similar characteristics originated through the bank's branch network or customer base. Another key characteristic is location of the property in a market with more material home price depreciation and/or current loan-to-value, two factors which tend to go hand in hand.

Properties in locations that have already experienced significant home price depreciation (e.g. certain areas of California and Florida) appear to be deteriorating at a faster pace than those in more stable markets. Finally, loans with anything less than full borrower documentation generally are performing worse than those traditionally underwritten. A particularly toxic situation develops when more than one of these characteristics is present.

Fitch has reviewed the largest banks with particular attention paid to those with the highest home equity exposure as a percentage of their portfolio. To the extent possible, we have factored in the relative risks associated with the abovementioned factors. Challenges in home equity lending are expected to persist throughout 2008 and into 2009. Because of the historically strong credit performance of home equity loans and the banks' abilities to lend to borrowers with relatively high credit scores, many banks sought to increase their home equity loan portfolios during the past several years. As a result, many banks have substantial exposure to home equity loans outstanding and yet undrawn home equity lines of credit.

Each of the ratings actions below is the result of Fitch's consideration and view on the mix of challenges facing each firm. And, while this broad review was aimed at companies with potentially material home equity exposure, in some cases the action was really determined by the combination of home equity exposure and other challenges. For example, Fitch's rating actions on First Horizon (FHN) also reflect continuing weakness in FHN's construction lending portfolio and rising non-performing assets in the homebuilder finance portfolio and construction loans made directly to consumers for single family homes, which comprise approximately 20% of total loans. Further, FHN's business model remains sensitive to weakness in the residential mortgage market. Management's cost-cutting efforts, initiatives to reduce underperforming businesses, and reserve levels provide support for the credit at the new rating level. The Negative Outlook reflects the potential for further deterioration over the next few quarters as the credit cycle progresses.

Rating actions taken on Washington Mutual (WM) reflect that company's proportionately higher concentration in not only home equity, but also residential mortgage loans, across the credit spectrum. While subprime makes up about 7% of loans and a disproportionate amount of net charge-offs, Fitch remains concerned about the broader loan portfolio that is consumer real estate secured. Approximately 37% of WM's total loan portfolio comprises residential mortgage and home equity loans in California.

In the cases of Citigroup, Bank of America, Fifth Third, and SunTrust, Fitch has not adjusted any ratings, but has placed each of these companies on Rating Watch Negative. Prior to placing these four firms on Rating Watch, each carried a Negative Rating Outlook. The Negative Rating Watch highlights Fitch's concern that the pace of deterioration in home equity and possibly other consumer loan portfolios may result in a rating change sooner than had been anticipated when the firms had Negative Outlooks. While resolution of the Watch status may extend beyond the review of 1Q08 results, Fitch currently anticipates results for this quarter and the outlook for consumer loan performance beyond the quarter will be primary factors in determining the ratings for these entities.

Fitch plans to publish a special report on the home equity business next week. This report will help to provide greater context to the challenges banks are facing and serve as a reference point for investors as they assess this important portfolio in the context of overall bank results in the coming quarters.

As a result of today's review, Fitch has taken the following rating actions:

First Horizon National Corporation

--Long-term IDR downgraded to 'BBB+' from 'A-';

--Short-term IDR downgraded to 'F2' from 'F1';

--Individual affirmed at B/C;

--Support affirmed at 5;

--Support Floor affirmed at NF;

--Subordinated debt downgraded to 'BBB' from 'BBB+';

--Short-term debt downgraded to 'F2' from 'F1';

--Outlook Negative.

First Tennessee Bank, NA

--LT IDR downgraded to 'BBB+' from 'A-';

--ST IDR downgraded to 'F2' from 'F1';

--Individual affirmed at B/C;

--Support affirmed at 5;

--Support Floor affirmed at NF;

--LT Deposits downgraded to 'A-' from 'A';

--Senior Debt downgraded to 'BBB+' from 'A-';

--Subordinated Debt downgraded to 'BBB' from 'BBB+';

--Preferred downgraded to 'BBB' from 'BBB+';

--Short Term Debt downgraded to 'F2' from 'F1';

--ST Deposits affirmed at 'F1';

--Outlook Negative.

First Tennessee Capital I AND II

--Trust Preferred downgraded to 'BBB' from 'BBB+';

--Outlook Negative.

National City Corporation

--LT IDR downgraded to 'A' from 'A+';

--ST IDR affirmed at 'F1';

--Individual affirmed at 'B';

--Support affirmed at '5';

--Support Floor affirmed at 'NF';

--Senior debt downgraded to 'A' from A+;

--Subordinated debt downgraded to 'A-' from 'A';

--Preferred downgraded to 'A-' from 'A';

--Outlook Negative.

National City Bank (Cleveland)

--LT IDR downgraded to 'A' from 'A+';

--ST IDR affirmed at 'F1';

--Individual affirmed at 'B';

--Support affirmed at '4';

--Support Floor affirmed 'B';

--LT Deposits downgraded to 'A+' from 'AA-' ;

--Senior debt downgraded to 'A' from 'A+';

--Subordinated debt downgraded to 'A-' from 'A';

--ST deposits downgraded to 'F1' from 'F1+'.

National City Bank of Kentucky

National City Bank of Indiana

--Senior debt downgraded to 'A' from 'A+';

--Subordinated debt downgraded to 'A-' from 'A';

--LT deposits downgraded to 'A+' from 'AA-'.

National City Bank of Pennsylvania

--Subordinated debt downgraded to 'A-' from 'A';

--LT deposits downgraded to 'A+' from 'AA-'.

National City Credit Corp

--ST IDR affirmed at 'F1';

--Support affirmed at '5';

--ST debt affirmed at 'F1'.

National City Bank (Columbus)

--Subordinated debt downgraded to 'A-' from 'A'.

Provident Bank

--LT deposits downgraded to 'A+' from 'AA-'.

PFGI Capital Corporation

National City Capital Trust II

National City Capital Trust III

National City Capital Trust IV

Fort Wayne Capital Trust

Fort Wayne Capital Trust I

National City Preferred Capital Trust I

--Trust Preferred downgraded to 'A-' from 'A'.

Washington Mutual Inc.

--LT IDR downgraded from 'A-' to 'BBB';

--ST IDR affirmed at 'F2';

--Individual affirmed at 'B/C';

--Support affirmed at '5';

--Support Floor affirmed at 'NF';

--Senior debt downgraded to 'BBB' from 'A-';

--Sub debt downgraded to 'BBB-' from 'BBB+';

--Preferred downgraded to 'BB+' from 'BBB+';

--ST debt affirmed at 'F2';

--Outlook Negative.

Washington Mutual Bank

--LT IDR downgraded to 'BBB' from 'A-';

--ST IDR affirmed at 'F2';

--Individual affirmed at 'B/C';

--Support affirmed at '3';

--Support Floor affirmed at 'BB-';

--Senior debt downgraded to 'BBB' from 'A-';

--Subordinated debt downgraded to 'BBB-' from 'BBB+';

--LT deposits downgraded to 'BBB+' from 'A';

--ST deposits downgraded to 'F2' from 'F1';

--Outlook Negative.

Bank United FSB

--Subordinated debt downgraded to 'BBB-' from 'BBB+'.

Bank United Corp.

--Subordinated debt downgraded to 'BBB-' from 'BBB+'.

Providian Financial Corp

--Senior debt downgraded to 'BBB' from 'A-'.

Providian National Bank

--Long Term Deposits downgraded to 'BBB+' from 'A'

Washington Mutual Preferred Funding (Cayman) I Ltd.

Washington Mutual Preferred Funding Trust I (Delaware)

Washington Mutual Preferred Funding Trust II

Washington Mutual Preferred Funding Trust III

Washington Mutual Preferred Funding Trust IV

--REIT Preferred downgraded to 'BB+' from 'BBB+'.

Washington Mutual Capital I

Providian Capital I

--Trust Preferred downgraded to 'BB+' from 'BBB+'.

Wells Fargo & Co.

--Individual Rating downgraded to 'A/B' from 'A';

--LT IDR affirmed at 'AA';

--ST IDR affirmed at 'F1+';

--Support affirmed at '5';

--Support Floor affirmed at 'NF';

--Senior debt affirmed at 'AA';

--Subordinated debt affirmed at 'AA-';

--Preferred affirmed at 'AA-';

--Short-term debt affirmed at 'F1+'.

Wells Fargo Bank, NA

--Individual Rating downgraded to 'A/B' from 'A';

--LT IDR affirmed at 'AA';

--ST IDR affirmed at 'F1+';

--Support affirmed at '2';

--Support Floor affirmed at 'BBB-';

--Long-term deposits affirmed at 'AA+';

--Subordinated debt affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Short-term debt affirmed at 'F1+'.

Wells Fargo Bank Northwest, NA

--Individual Rating downgraded to 'A/B' from 'A';

--LT IDR affirmed at 'AA';

--ST IDR affirmed at 'F1+';

--Support affirmed at '2';

--Support Floor affirmed at 'BBB-';

--Long-term deposits affirmed at 'AA+';

--Short-term deposits affirmed at 'F1+';

--Senior debt affirmed at 'AA'.

Wells Fargo Financial, Inc.

--LT IDR affirmed at 'AA';

--Senior debt affirmed at 'AA'.

Wells Fargo Capital II

Wells Fargo Capital Trust IV, VII, VIII, X, XI

InterWest Capital Trust I

--Preferred affirmed at 'AA-'.

Wells Fargo Financial Canada Corp.

--LT IDR affirmed at 'AA';

--ST IDR affirmed at 'F1+';

--Senior debt at affirmed 'AA';

--Short-term debt affirmed at 'F1+'.

WFC Holdings Corp.

--Subordinated debt affirmed at 'AA-'.

Greater Bay Bank, NA

--Individual Rating downgraded to 'A/B' from 'A';

--LT IDR affirmed at 'AA';

--ST IDR affirmed at 'F1+';

--Support affirmed at '2';

--Support Floor affirmed at 'BBB-';

--Long-term deposits affirmed at 'AA+';

--Short-term deposits affirmed at 'F1+'.

Greater Bay Bancorp, Inc.

--Senior debt affirmed at 'AA'.

In addition, Fitch places the following ratings on Watch Negative:

Bank of America Corporation

--LT IDR 'AA'

--Long-term senior debt 'AA';

--Long-term subordinated debt 'AA-';

--Preferred Stock `AA-';

--Individual 'A/B'.

Bank of America N.A.

--LT IDR 'AA';

--Long-term deposits 'AA+';

--Long-term senior debt 'AA';

--Long-term subordinated debt 'AA-';

--Individual 'A/B'.

FIA Card Services N.A.

--LT IDR at 'AA';

--Long-term deposits 'AA+';

--Long-term senior debt 'AA';

--Long-term subordinated debt 'AA-'

--Individual 'A/B'.

MBNA Europe Bank Ltd.

--LT IDR 'AA';

--Long-term senior debt 'AA';

--Subordinated debt 'AA-';

--Individual Rating 'A/B'.

MBNA Canada Bank

--LT IDR 'AA';

--Long-term senior debt 'AA';

--Subordinated debt 'AA-'.

United States Trust Company N.A.

--LT IDR 'AA';

--Long-term deposits 'AA+';

--Long-term senior debt 'AA';

--Individual rating 'A/B'.

US Trust Co. of New York

--Long-term deposits 'AA+'.

Banc of America Securities Limited

--LT IDR 'AA'.

Banc of America Securities LLC

--LT IDR 'AA'.

B of A Issuance B.V.

--LT IDR 'AA';

--Long-term senior debt 'AA';

--Long-term subordinated debt 'AA-'.

Bank of America Georgia, N.A.

--Long-term IDR 'AA';

--Individual rating 'A/B'.

Bank of America Oregon, National Association

--LT IDR 'AA'.

--Individual 'A/B';

Bank of America Rhode Island, National Association

--LT IDR 'AA'.

--Individual 'A/B';

Bank of America California, National Association

--LT IDR 'AA';

--Individual 'A/B'.

LaSalle Bank N.A.

--LT IDR `AA';

--Long-term deposits 'AA+';

--Individual 'A/B'.

LaSalle Bank Midwest N.A.

--LT IDR `AA';

--Long-term deposits 'AA+';

--Individual 'A/B'.

LaSalle Bank Corporation

--LT IDR `AA';

--Individual at 'A/B'.

ABN Amro North America Holding Capital Funding LLC I - XIX

--Preferred stock 'AA-'.

ABN Amro North America Capital Funding Trust I - II

--Trust Preferred Stock 'AA-'.

BAC Capital Trust I - VIII