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Fitch Affirms Citizens Financial Group's IDR at 'BBB+'; Outlook Remains Stable
August 21, 2014 / 7:27 PM / 3 years ago

Fitch Affirms Citizens Financial Group's IDR at 'BBB+'; Outlook Remains Stable

(The following statement was released by the rating agency) NEW YORK, August 21 (Fitch) Fitch Ratings has affirmed the long-term and short-term Issuer Default Ratings (IDRs) of Citizen's Financial Group, Inc. (CFG) and its subsidiaries at 'BBB+' and 'F2', respectively. The Rating Outlook is Stable. CFG's Viability Rating (VR) has also been affirmed at 'bbb+'. A complete list of rating actions follows at the end of this release. The affirmation of CFG's ratings follows Fitch's UK Bank peer review and the affirmation of Royal Bank of Scotland Group plc's (RBSG) ratings. Please see Fitch's separate press release dated July 24, 2014 for additional detail. KEY RATING DRIVERS - IDRS, VRS, AND SENIOR DEBT CFG's 'bbb+' VR, which embodies the standalone assessment of CFG, has been affirmed reflecting the company's superior capital position, solid asset quality, and strong deposit franchise relative to Fitch's large regional peer group. These strengths are tempered by CFG's relatively weak earnings performance and high exposure to home equity lines of credit (HELOCs). In association with its initial public offering (IPO), CFG recently announced a number of strategic initiatives. The bank intends to increase staffing, grow earning assets, improve profitability and remediate capital planning deficiencies identified from the bank's CCAR stress test results. While Fitch generally views these goals positively, ratings are currently constrained by the uncertainty surrounding their successful execution. CFG's capital levels are solidly above its peers, benefiting from balance sheet contraction and conservative capital management. Given that CFG is operating with excess capital, Fitch's affirmation incorporates the view that capital will decline over time. Nonetheless, Fitch expects capital deployment strategies to be measured given the current economic and competitive environment. Ratings are further supported by CFG's strong deposit franchise and funding profile. CFG ranks second by deposit market share in the New England region and in the top five in nine of its key metropolitan statistical areas (MSAs). CFG also has one of the highest portions of deposits in core markets with over 75% of deposits in states where it holds a top 3 market share. This has translated to a favourable mix of lower-cost deposits. CFG's funding profile strengths are partially offset by relative weaknesses in liquidity and company profile. CFG has a higher loan-to-deposit ratio and portion of short-term borrowings than regional peers. Additionally, CFG's commercial banking franchise is less developed, limiting pricing power and negatively pressuring loan yields. CFG's long- and short-term IDRs are equalized to CFG's VR at 'BBB+', reflecting Fitch's view that CFG is of 'limited importance' to RBSG. CFG's VR will anchor ratings going forward. See Fitch's criteria report 'Rating FI Subsidiaries and Holding Companies' for more information on this topic. RATING SENSITIVITIES - IDRS, VRS AND SENIOR DEBT As discussed, CFG's long- and short-term IDRs are equalized to CFG's VR at 'BBB+'. CFG's VR will anchor ratings going forward, subject to a subsidiary's VR being limited to three notches above the parent's long-term IDR, which is not currently a constraining factor. Fitch considers CFG's VR to be solidly situated at its current level. Nonetheless, positive rating momentum could occur should CFG improve its profitability levels commensurate to those of higher rated regional banks. Moreover, ratings are currently constrained by uncertainty related to the execution of the bank's broader strategic goals. Ratings could improve over the intermediate to long term if the bank successfully executes on its plan to improve performance and remediate capital planning deficiencies. Conversely, factors that could lead to negative pressure on the VR include a reversal of improving credit quality trends or material increase in risk appetite through outsized growth in commercial loans. Additionally, current ratings are supported by CFG's superior capitalization. Should capital levels be managed well below current levels without a corresponding increase in core earnings, negative ratings action may ensue. Fitch notes that CFG has a higher exposure to home-equity lines of credit than peers and may be more adversely impacted by looming reset risk. While there remains a risk of increased credit losses on these loans, Fitch views the potential losses as manageable given the proportion of loans subject to reset periods and CFG's strong capital base. However, negative rating action may result if loss rates exceed Fitch's expectations. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR CFG's Support Rating of '2' reflects Fitch's view that there is a high probability of external support from CFG's parent, RBSG, as long as RBSG is considered the 'source of strength' under Dodd-Frank. RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR The SR is potentially sensitive to any change in assumptions around the propensity or ability of RBSG to provide timely support to the bank. This might arise if RBSG reduces or eliminates its ownership position through a public offering of shares or strategic sale. KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by CFG and its subsidiaries are all notched down from CFG's VR of 'bbb+' in accordance with Fitch's assessment of each instrument's respective non-performance and relative Loss Severity risk profiles, which vary considerably. RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES CFG's subordinated debt is sensitive to changes in CFG's VR. Rating sensitivities for the VR are listed above. SUBSIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS RBS Citizens, NA and Citizens Bank of Pennsylvania are wholly owned subsidiaries of CFG whose debt ratings are aligned with CFG's reflecting Fitch's view that the bank subsidiaries are core to the franchise. SUBSIDIARY AND AFFILIATED COMPANY RATING SENSITIVITIES RBS Citizens, NA and Citizens Bank of Pennsylvania's ratings are sensitive to changes to CFG's VR or any changes to Fitch's view of structural subordination between bank subsidiary and holding company. Rating sensitivities for the VR are listed above. The rating actions are as follows: Citizens Financial Group, Inc. --Long-term IDR affirmed at 'BBB+'; Outlook Stable; --Short-term IDR affirmed at 'F2'; --Viability rating affirmed at 'bbb+'; --Subordinated debt affirmed at 'BBB'; --Support rating affirmed at '2'. Citizens, NA --Long-term IDR affirmed at 'BBB+'; Outlook Stable; --Short-term IDR affirmed at 'F2'; --Viability rating affirmed at 'bbb+'; --Support rating affirmed at '2'; --Long-term deposits affirmed at 'A-'; --Senior Unsecured affirmed at 'BBB+'; --Short-term deposits affirmed at 'F2'. Citizens Bank of Pennsylvania --Long-term IDR affirmed at 'BBB+', Outlook Stable; --Short-term IDR affirmed at 'F2'; --Viability rating affirmed at 'bbb+'; --Support rating affirmed at '2'; --Long-term deposits affirmed at 'A-'; --Short-term deposits affirmed 'F2'. Contact: Primary Analyst Ryan Doyle Director +1-212-908-9162 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Jaymin Berg, CPA Director +1-212-908-0368 Committee Chairperson Christopher Wolfe Managing Director +1-212-908-0771 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Jan. 31 2014); --'Rating FI Subsidiaries and Holding Companies' (Jan. 31 2014); --'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 5, 2012); --'Bank Support: Likely Rating Paths' (Sept. 11, 2013); --'The Evolving Dynamics of Support for Banks' (Sept. 11, 2013). Applicable Criteria and Related Research: The Evolving Dynamics of Support for Banks here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Rating FI Subsidiaries and Holding Companies here Global Financial Institutions Rating Criteria here Bank Support: Likely Rating Paths here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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