Correction: Fitch Affirms BB&T Corp's IDRs at 'A+/F1' ; Outlook Stable

CHICAGO--()--(This is a correction of a release published Oct. 4, 2016. It corrects BB&T Corporation's short-term ratings to 'F1', which were stated as 'F1+' in the original release.)

Fitch Ratings has affirmed BB&T Corporation's (BBT) ratings at 'A+/F1'. The Rating Outlook remains Stable. The affirmation reflects the consistency of the company's performance, conservative risk appetite, and its sound risk management practices.

The rating action follows Fitch's periodic review of the large regional banking group, which includes BB&T Corporation (BBT), Capital One Finance Corporation (COF), Citizens Financial Group, Inc. (CFG), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), MUFG Americas Holding Corporation (MUAH), PNC Financial Services Group (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, VRs, AND SENIOR DEBT

The affirmation reflects the consistency of the company's performance, conservative risk appetite, and sound risk management practices. Fitch views BBT's management team very favorably, with a very solid consistent track record. BBT's insurance franchise is also considered one of the company's key strengths, as the sixth largest insurance agency/broker in the world. Fitch views BBT's insurance line of business favorably as well, as it supports a great deal of revenue diversity with strong margins.

BBT recently reiterated that the company's strategic focus has shifted from executing on strategic deals to improving profitability through expense management and revenue enhancements, and M&A is 'off the table.' BBT completed the conversion of National Penn in mid-July, which added approximately $7 billion in deposits and $10 billion in assets, with 126 new branches in Pennsylvania, New Jersey, and Maryland.

In second quarter 2016 (2Q16), BBT incurred $92 million in merger-related and restructuring charges related to National Penn, but also to insurance broker Swett & Crawford. Given the company's acquisitive nature, Fitch does not exclude merger-related charges, though recognizes these items will be more episodic in nature, and likely will be lower given management's stated objectives to take a break from M&A. Excluding merger-related and restructuring charges, BBT reported an ROA of 1.16% in 2Q16. BBT remains one of the highest rated banks, and this quarter's results are in line with our expectations.

Given BBT's fee income and solid efficiency levels, Fitch still expects BBT to outperform its peers. BBT's long-term ROA objective is between 1.3% and 1.5%, with a targeted efficiency ratio between 53% and 55%. Fitch views these targets as very attainable, especially in a better interest rate environment.

BBT also disclosed that three previously discussed large technology-related spending projects are either completed (the new general ledger system and data center) or almost completed (new commercial loan system) and as such, core operating expenses should improve going forward.

Fitch views BBT's capital position as appropriate, especially in light of the company's conservative risk profile. BBT's Common Equity Tier 1 ratio under Basel III was 10% at June 30, 2016. While this is below peer averages, it remains well above the company's internal operating target of 8.5%, which is deemed as adequate for BBT given its historical track record. Over the past 40 quarters, BBT has reported the most consistent earnings of the large regional bank peer group, which were also higher than the peer average. BBT recently reiterated that its capital distribution priorities remain in this order: organic growth, dividends, M&A, and last, share buybacks.

BBT has already begun planning to become an Advanced Approach (AA) bank given its asset size with projections of exceeding the $250bn threshold over the near- to intermediate-term. In preparation, BBT has around 40% of its securities classified as held-to-maturity, which would insulate regulatory capital from swings in interest rates when the company becomes an AA bank.

BBT's ratings also incorporate a solid core funding base, which is derived from its extensive regional banking franchise that spans the Southeast and Mid-Atlantic. BBT has at least the top-five market share in most of the markets in which it operates. Ample holding company liquidity is deemed important for BBT due to a higher balance of debt relative to other large regional peer banks. BBT also disclosed its estimated liquidity coverage ratio (LCR) remains a very high 135%.

Asset quality remains very good. BBT reported just 36bps of net charge-offs (NCOs) in 2Q16, just slightly higher than the peer median. Given the make-up of BBT's loan book, especially in its subprime automobile, credit card and other lending subsidiaries portfolios, it is expected to have somewhat higher loan losses than its peers. Fitch expects that loan losses will deteriorate for BBT, as well as for the industry, from currently unsustainably low levels. Further, BBT's nonperforming assets were the second lowest of the peer group at June 30, 2016, and energy-related exposure is modest at just 1% of total loans.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

BBT's subordinated debt is notched one level below its VR of 'a+' for loss severity. BBT's preferred stock is notched five levels below its VR, two times for loss severity and three times for non-performance. These ratings are in accordance with Fitch's criteria and assessment of the instrument's non-performance and loss severity risk profiles and have thus been affirmed due to the affirmation of the VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The uninsured deposit ratings of Branch Banking & Trust Company are rated one notch higher than BBT's Issuer Default Rating (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.

HOLDING COMPANY

BBT's IDR and VR are equalized with those of its bank, 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 subsidiary. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary failure and default probabilities.

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

VR, IDRs, AND SENIOR DEBT

With a long-term IDR of 'A+', BBT remains one of the highest rated banks in the world. There is currently a low likelihood that BBT's ratings would be upgraded over the near term. Upward ratings migration would be predicated on a superior earnings profile relative to peers, and the maintenance of capital at or above internal targeted operating minimums.

Fitch anticipates that BBT will not pursue bank M&A over the near term as it concentrates on improving profitability. However, if BBT were to acquire another bank, Fitch would evaluate any acquisition on its merits., A sizable acquisition that adds incremental risk and leverage to the company, however, could have negative rating implications.

BBT's ratings could also move lower should credit quality deteriorate substantially or if the company becomes a more aggressive capital manager. Fitch expects it will take some time for BBT to manage its capital ratios down to its operating targets.

Fitch views a downgrade as a low likelihood given the conservative risk appetite and consistency in performance. Downgrade scenarios would be predicated on BBT converging at peer averages across the board, and not adequately distinguishing itself from its peer group.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings for BBT and its operating companies' subordinated debt and preferred stock are sensitive to any change to BBT's VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The long- and short-term deposit ratings are sensitive to any change to BBT's long- and short-term IDR.

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 bank's ratings.

SUPPORT RATING AND SUPPORT RATING FLOOR

Since BBT's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future.

Fitch has affirmed the following ratings:

BB&T Corporation

--Long-term Issuer Default Rating (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'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bank Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884135

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Julie Solar
Senior Director
+1-312-368-5472
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Secondary Analyst
Doriana Gamboa
Senior Director
+1-212-908-1865
or
Committee Chairperson
Christopher Wolfe
Managing Director
+1-212-908-0771
or
Media Relations
Hannah James, + 1-646-582-4947
hannah.james@fitchratings.com