Fitch Affirms Support Ratings & Support Rating Floors for Bank of N.T. Butterfield; Outlook Negative

NEW YORK--()--Fitch Ratings has affirmed Bank of N.T. Butterfield & Son Limited's (BNTB) Support Rating (SR) and Support Rating Floor (SRF) at '1' and 'A-', respectively. At the same time, Fitch has affirmed BNTB's long- and short-term IDRs at 'A-/F1', but revised the Rating Outlook to Negative from Stable, reflecting our evolving views of sovereign support. Fitch envisions the resolution of the Rating Outlook could extend beyond the typical eighteen to twenty-four month outlook horizon given the evolving nature of sovereign support dynamics.

KEY RATING DRIVERS - IDR, SUPPORT RATING AND SUPPORT RATING FLOOR

The affirmations of BNTB's IDR, SR and SRF reflect its systemic importance to the local economy, as well as demonstrated support from the Bermudian government in the past, namely the 2009 guarantee on the principal and interest payments of BNTB's preferred stock. The preferred stock rating would be unaffected by any changes to BNTB's SR or SRF as it is based off of sovereign support.

However, the revision of the Rating Outlook to Negative reflects Fitch's evolving view of support from Bermuda. Fitch considers Bermuda to be a Path 2 country, defined as one in which there is a weakening of sovereign support of the banking sector.

The Bermuda Monetary Authority's (BMA) proposal regarding a statutory framework for a special resolution regime for banks licensed in Bermuda embeds many of the provisions of the UK Banking Act 2009, according to the BMA. It proposes to provide the authorities with the necessary stabilization powers to transfer part or all of a failing bank's business to a private sector purchaser, assume control of part or all of a failing bank's business through a bridge bank, and acquire temporary public ownership of a bank where required. The proposed framework suggests a weakening of support for the financial sector over time, in Fitch's view.

RATING SENSITIVITIES - IDR, SUPPORT RATING AND SUPPORT RATING FLOOR

BTNB's IDR is sensitive to changes in the SRF as the IDR is at its SRF. Fitch adopts a 'higher of' approach in assigning Long-Term IDRs to financial institutions, taking the higher of the SRF and the standalone financial strength (as reflected in the Viability Rating (VR) of 'bbb-' for BTNB). In this case, BTNB's IDR relies on the SRF of 'A-'. If the SRF is downgraded, BTNB's IDR would be vulnerable to a downgrade to as low as its VR of 'bbb-'.

As a Path 2 country, SRF revisions for systemically important banks are likely initially to be up to one rating category (e.g. a SRF in the 'A' range could fall into the 'BBB' range), while SRF revisions for mid-sized or small banks could be greater, potentially as far as 'No Floor'. Fitch considers BNTB to a systemically important institution to Bermuda, as it represents approximately 40% of banking assets and nearly twice as much as GDP.

Fitch will also assess the government's ability to support BNTB and potentially revise the SRF if the sovereign's rating were downgraded by more than one notch. The ability has clearly come into question given the weakening fiscal position of the sovereign.

KEY RATING DRIVERS - PREFERRED STOCK

Preferred stock issued by BNTB is equalized with Bermuda's foreign currency long-term IDR of 'AA-', reflecting the guarantee from the Bermuda Government. The Ministry of Finance agreed to guarantee the principal and dividends on BNTB's preferred stock of $200 million when it was issued in 2009. The government guaranteed expires in 2019.

RATING SENSITIVITIES - PREFERRED STOCK

BNTB's preferred stock rating is highly sensitive to any changes in the ability of the Bermuda government to fulfill its obligation. Bermuda's foreign currency LT IDR rating outlook is Negative, reflecting continued uncertainty as to Bermuda's fiscal and economic trajectory and the lack of a credible fiscal consolidation strategy. A downgrade in the sovereign rating of Bermuda would trigger a commensurate downgrade of the preferred stock.

Fitch has affirmed the following ratings.

Bank of N.T. Butterfield & Son Limited

--Long-Term Issuer Default Rating (IDR) at 'A-'; Rating Outlook revised to Negative from Stable;

--Short-Term IDR at 'F1';

--Support Rating at '1';

--Support Rating Floor at 'A-';

--Preferred stock at 'AA-'.

The following ratings are unaffected:

Bank of N.T. Butterfield & Son Limited

--Viability rating 'bbb-';

--Subordinated debt 'BB+'.

Fitch will hold a teleconference to discuss sovereign support for banks and give an update on rating paths on Friday, March 28 at 15:00 GMT.

Callers must register in advance using the link below and are requested to dial in early:

http://event.onlineseminarsolutions.com/r.htm?e=773507&s=1&k=E99B5BCE23C11883F75DA40C4B1FED21

Additional information is available at www.fitchratings.com

In addition to the source(s) of information identified in Fitch's Master Criteria, these actions were additionally informed by information provided by the companies.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (January 2014);

--'Sovereign Support for Banks: Update on Position Outlined in 3Q13' (December 2013);

--'Bank Support: Likely Rating Paths' (September 2013);

--'The Evolving Dynamics of Support for Banks' (September 2013)

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Sovereign Support For Banks: Update on Position Outlined in 3Q13

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726698

Bank Support: Likely Rating Paths

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715001

The Evolving Dynamics of Support for Banks

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715000

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825136

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Doriana Gamboa, +1-212-908-0865
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Julie Solar, +1-312-368-5472
Senior Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Doriana Gamboa, +1-212-908-0865
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Julie Solar, +1-312-368-5472
Senior Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com