Fitch Affirms BB&T Corp's L-T IDR at 'A+' Following Large Regional Bank Review; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed BB&T Corporation's (BBT) Issuer-Default Ratings (IDRs) at 'A+/F1'. The Rating Outlook remains Stable. The affirmation reflects BBT's conservative risk appetite, strong management team, and improving financial profile.

The rating action follows a periodic review of the large regional banking group, which includes BB&T Corporation (BBT), Capital One Financial Corporation (COF), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), MUFG Americas Holdings Corporation (MUFG), PNC Financial Services Group, Inc. (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION).

Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Large Regional Bank Periodic Review,' to be published shortly.

KEY RATING DRIVERS - IDRs, VIABLITY RATINGS (VR) & SENIOR DEBT

BBT's ratings were affirmed at 'A+/F1' reflecting the consistency of the company's performance through the credit cycle. Despite an operating footprint that was particularly hard hit, BBT remained profitable through the cycle, a testament to its strong underwriting and conservative risk culture. Given the prolonged low interest rate environment, Fitch remains concerned regarding the industry's potential to assume greater risk to improve returns. In Fitch's view, BBT's risk appetite and control infrastructure help to guard against excessive growth or weakening of underwriting standards. The company utilizes conservative risk limits, and exceptions to these limits are very rare. The company has historically had a very granular loan book with very few outsized credits.

Although not immune to regulatory-related actions or legal fines, BBT's experience to date has been relatively manageable, especially in light of its sizeable residential mortgage exposure which has been the root of so many problems for the industry. While BBT did record a charge in the second quarter of 2014 (2Q'14) related to its FHA-insured loan origination processes, it was manageable, and not considered indicative of material risk control failings.

BBT's ratings are also supported by its consistent business model, strong insurance franchise, and experienced management team. BBT's insurance franchise is considered one of the company's key franchise strengths, as the sixth largest insurance broker in the world, based on total brokerage revenue. Fitch views BBT's insurance line of business favorably, as it supports a good degree of revenue diversity with strong margins.

In terms of its financial profile, BBT's earnings performance has improved, and now tracks better than the peer average, providing support to its higher relative rating. Asset quality metrics continue to moderate, with just 40 basis points (bps) of net charge-offs (NCOs) in 2Q'14 (excluding covered assets), below the company's normalized range of 50bps to 70bps for the next few quarters. Fitch views the industry's low level of NCOs as unsustainable, and expects some mean reversion in losses, particularly in C&I and card, for the industry over the near-to-intermediate term.

BBT's liquidity and capital profiles also remain solid. BBT disclosed its estimated liquidity coverage ratio (LCR) at June 30, 2014 of close to 140% under the final rules. BBT also disclosed that its high quality liquid asset (HQLA) as a percentage of total assets was 16%, an additional metric that many of its peers have yet to publicly disclose. Fitch views BBT's capital position as appropriate, especially in light of the company's conservative risk profile. The bank's Tier 1 common ratio under Basel III was an estimated 10% at June 30, 2014, unchanged from last quarter, and roughly in line with other large regional banks.

RATING SENSITIVITIES - IDRs, VRs AND SENIOR DEBT

As BBT is one of the highest-rated large regional banks, an upgrade is currently viewed as unlikely over the near term; however, significantly improved profitability metrics, combined with the maintenance of an appropriate level of capital could lead to an upgrade. Conversely, failure to maintain earnings at current levels could result in negative ratings pressure.

Although considered a low likelihood, a large legal or regulatory fine that impaired capital or raised concerns regarding BBT's risk management infrastructure could pressure the company's ratings. In addition, a new strategic direction which suggested its risk appetite was increasing could apply downward pressure on BBT's ratings.

KEY RATING DRIVERS - HOLDING COMPANY

BBT's IDR and VR are equalized with those of its operating companies and banks, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary default probabilities.

RATING SENSITIVITIES - HOLDING COMPANY

Should BBT's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely though for BBT given the strength of the holding company liquidity profile.

Fitch is now considering introducing a rating differential between the holding company and bank in the U.S. due to structural changes in the sector and the evolving regulatory landscape, as described in the special report 'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles', dated March 27, 2014. Given Fitch's views that BBT may not receive a long-term debt requirement, its ratings may not be impacted as a result of Fitch's evolving review regarding notching.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

BBT has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, BBT is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

BBT's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by BBT and by various issuing vehicles are all notched down from BBT or its bank subsidiaries' VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of subordinated debt and other hybrid capital issued by BBT and its subsidiaries are primarily sensitive to any change in BBT's VR.

KEY RATING DRIVERS - SUBSIDIARY AND AFFILIATED COMPANY

The IDRs and VRs of BBT's bank subsidiaries benefit from the cross-guarantee mechanism in the U.S. under FIRREA, and therefore the IDRs and VRs of Branch Banking & Trust Company and BB&T Financial, FSB are equalized across the group.

RATING SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANY

As the IDRs and VRs of the subsidiaries are equalized with those of BBT to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in BBT's IDRs.

To the extent that one of BBT's subsidiary or affiliated companies is not considered to be a core business, Fitch could also notch the subsidiary's rating from BBT's IDR.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS

BBT's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by BBT and its subsidiaries are primarily sensitive to any change in BBT's long- and short-term IDRs.

Fitch has affirmed the following ratings:

BB&T Corporation

--Long-term IDR at 'A+'; Outlook Stable;

--Short-term IDR at 'F1';

--Viability at 'a+';

--Senior debt at 'A+';

--Subordinated debt at 'A';

--Short-term debt at 'F1';

--Preferred stock at 'BBB-';

--Support at '5';

--Support Floor at 'NF'.

Branch Banking & Trust Company

--Long-term IDR at 'A+'; Outlook Stable;

--Short-term IDR at 'F1';

--Viability at 'a+';

--Senior debt at 'A+';

--Subordinated debt at 'A';

--Short-term debt at 'F1';

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

--Short-term deposit at 'F1+';

--Support at '5';

--Support Floor at 'NF'.

BB&T Financial, FSB

--Long-term IDR at 'A+'; Outlook Stable;

--Short-term IDR at 'F1';

--Viability at 'a+';

--Support at '5';

--Support Floor at 'NF'.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' (Jan. 31, 2014);

--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles' (March 27, 2014);

--'U.S. Banking Quarterly Comment: 2Q14' (July 23, 2014);

--'Index Trend Analysis - 2Q14 (Fitch Fundamentals Index Falls to Neutral)' (July 15, 2014);

--'Risk Radar Global 3Q14' (Sept. 15, 2014).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

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

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

U.S. Bank HoldCos & OpCos: Evolving Risk Profiles

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742096

U.S. Banking Quarterly Comment: 2Q14 (Environment Constraining Earnings)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753107

Index Trend Analysis - 2Q14 (Fitch Fundamentals Index Falls To Neutral)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752428

Risk Radar Global 3Q14

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=773568

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=891938

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Julie Solar
Senior Director
+1-312-368-5472
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Doriana Gamboa
Director
+1-212-908-0865
or
Committee Chairperson
Joo-Yung Lee
Managing Director
+1-212-908-0560
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549,
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Julie Solar
Senior Director
+1-312-368-5472
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Doriana Gamboa
Director
+1-212-908-0865
or
Committee Chairperson
Joo-Yung Lee
Managing Director
+1-212-908-0560
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549,
brian.bertsch@fitchratings.com