EquityLoaninNews.com

Credit Rating Upgrade: Webster Financial

03.08.11

Morningstar is raising the credit rating for Webster Financial by one notch, to BBB from BBB-. The new rating is driven primarily by Webster's continued increase in capital and reduction in nonperforming loans. Webster Financial has approximately $18 billion in assets and operates more than 180 branches in Connecticut, Massachusetts, Rhode Island, and New York. The bank makes residential mortgage, consumer, business, and commercial real estate loans. Thanks to an unimpressive net interest margin and relatively weak expense control, the bank has never shown stellar earnings power. Return on assets averaged only about 1% between 2000 and 2007. During the credit boom, Webster expanded into brokered construction and home equity loans and risky securities in an attempt to boost net interest margin. This expansion proved unsuccessful as the percentage of nonperforming loans jumped. During� the last few years, Webster has had to raise capital and write down some of the bad loans to increase stability. The company has made improvements to its balance sheet, with nonperforming loans only representing 2.1% of loans and with reserves to nonperforming loans at well over 100%. The bank's ratio of tangible common equity to tangible assets stands at approximately 7.5%, and while this is an improvement over the 4.0% from two and a half years ago, it is still below peers.

Source: Toronto Star