Fitch Downgrades National Consumer Cooperative Bank's L-T IDR to 'B-'; Maintains Watch Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded the long-term Issuer Default Rating (IDR) of National Consumer Cooperative Bank (NCCB) to 'B-' from 'B'. The long-term IDR of NSB, FSB (FSB) remains 'B'. Fitch maintains both ratings on Rating Watch Negative. A full list of rating actions follows at the end of this release.

NCCB, which is the parent of FSB, has ceased making new loans. Its daily operations consist primarily of asset sales and collecting and servicing its remaining loan portfolio. NCCB remains focused on reducing debt under amended agreement with its senior lenders under the revolving credit facility and senior note agreement.

NCCB has reduced aggregate balance on its senior notes and revolving facility to $42.4 million at June 30, 2010 from $215.5 million at Dec. 31, 2009, and expects to repay the remaining balance before year end 2010. However, NCCB also has an additional subordinated debt amortization payment due to the U.S. Treasury of approximately $23.9 million before year-end 2010. Liquidity at NCCB appears sufficient to make this payment; however, following that payment the company's cash position will likely be quite limited. Of note, NCCB has the contractual option to delay the payment on the sub-debt to a later date, albeit with the consequence of significantly increased interest costs, until the payment is made. Further, FSB is prohibited from upstreaming cash to NCCB as a result of its supervisory agreement.

The current rating levels are supported by the expectation that near-term operating performance will remain constrained as impaired loans continue to be a drag on earnings. Despite some improvement in asset quality trends, many middle market businesses in the healthcare, franchise, and hardware markets are still facing financial difficulties, and asset quality remains challenged. Fitch expects NCCB's overall portfolio to continue to shrink, thus reducing net interest income further.

NCCB and FSB have submitted business plans, as required under the regulatory orders, and are presently operating in keeping with those plans. Futher, FSB's current capital ratios continue to exceed regulatory requirements.

Fitch expects to resolve the Rating Watch Negative status upon satisfactory repayment of the senior loan facility and senior notes as well as the resolution to the subordinated debt amortization payment of $23.9 million.

Negative rating actions could result from a further reduction in the ability of NCCB or FSB to meet debt obligations, including NCCB's upcoming amortization payment, further deterioration in asset quality or deterioration in capital levels. There are several elements of the C&D and supervisory agreement that restrict operations at NCCB and FSB; thus, any positive rating momentum will likely be constrained until the C&D and supervisory agreement is lifted.

Fitch has downgraded and maintains the following ratings on Rating Watch Negative:

National Consumer Cooperative Bank
--Long-term IDR to 'B-' from 'B';
--Senior secured to 'BB-(RR1)' from 'BB(RR1)'.

Fitch maintains the following ratings on Rating Watch Negative:

National Consumer Cooperative Bank
--Short-term IDR 'B';
--Individual 'D/E'.

NCB, FSB
--Long-term IDR 'B';
--Short-term IDR 'B';
--Individual 'D';
--Long-term deposits 'B+/RR3';
--Short-term deposits 'B'.

NCB Capital Trust I
--Preferred stock 'CC/RR6'.

Fitch affirms the following ratings:

National Consumer Cooperative Bank
--Support at '5';
--Support Floor at 'NF'.

NCB, FSB
--Support at '5'.

Fitch assigns the following rating:

NCB, FSB

--Support Floor 'NF'.

Additional information is available www.fitchratings.com.

This rating action reflects the application of Fitch's current criteria which is available on Fitch's web site www.fitchratings.com and specifically includes:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);
--'Bank Holding Companies' (Dec. 30, 2009);
--'Finance and Leasing Companies Criteria' (Dec. 30, 2009);
--'Recovery Ratings for Financial Institutions' (Dec. 30, 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.

Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
Finance and Leasing Companies Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493344
Recovery Ratings for Financial Institutions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493330
Bank Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493324

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