BankUnited (BKU) Ratings, Outlook Affirmed by Moody's
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Moody's Investor Service affirmed that ratings of BankUnited, Inc (NYSE: BKU) and its bank subsidiary BankUnited, National Association with a stable outlook. BankUnited, Inc is rated Ba1 for senior unsecured debt. BankUnited, NA has bank deposit ratings of Baa1/Prime-2 and a standalone baseline credit assessment (BCA) of baa3. Its issuer rating is Ba1 and its counterparty risk assessments are Baa2(cr)/Prime-2(cr).
The following ratings and assessments have been affirmed:
Issuer: BankUnited, National Association
.... Baseline Credit Assessment, baa3
.... Adjusted Baseline Credit Assessment, baa3
.... Long-term Counterparty Risk Assessment, Baa2(cr)
.... Short-term Counterparty Risk Assessment, P-2(cr)
.... Long-term local currency issuer rating, Ba1, Stable
.... Long-term local currency deposit rating, Baa1, Stable
.... Short-term local currency deposit rating, P-2
Issuer: BankUnited, Inc
....Long-term local currency senior unsecured debt rating , Ba1, Stable
....Pref. Shelf, (P)Ba2
....Pref. shelf Non-cumulative Shelf, (P)Ba3
....Subordinate Shelf, (P)Ba1
....Senior Unsecured Shelf, (P)Ba1
..Issuer: BankUnited, NA
.. Issuer: BankUnited, Inc
The affirmation balances BankUnited's significant progress in transforming its business model into a commercial bank with strong financial metrics with the risk to creditors stemming from its rapid loan growth.
Over several years, BankUnited has transformed itself from a thrift that gathered high-cost deposits to fund residential mortgages into a commercial bank that generates low-cost transaction deposits for more of its funding. Its loan portfolio is now more diversified and includes Commercial and Industrial loans, Commercial Real Estate (CRE) loans, and loans generated by its national lending platforms, and is more geographically dispersed.
For creditors, tempering this achievement is the high growth strategy that BankUnited has pursued to accomplish its transformation. While loan growth has slowed in 2016, it remains quite significant with total loans growing 19% through 30 September 2016, annualized. Although BankUnited has signaled plans to moderate loan growth and improve its funding profile, this follows several consecutive years of loan growth in excess of 30%. As such, further evidence of firm asset quality performance as BankUnited's portfolio matures is needed for positive rating pressure to emerge.
Furthermore, loan growth has outpaced BankUnited's core deposit growth in recent years, weakening its funding profile. Only 80% of its loan portfolio is funded by core deposits compared to 100% at year-end 2014. Management's plan to focus on core deposit gathering will improve its funding and liquidity profile.
Moody's noted that years of rapid CRE loan growth has resulted in a significant CRE concentration at 3.3 times BankUnited's tangible common equity (TCE) base, among the highest of rated US banks. However, BankUnited's CRE concentration risk is somewhat mitigated by its composition. Much of the growth has been in New York City multifamily loans, where asset quality performance benefits from low vacancy rates and rent stabilization. Indeed, half of BankUnited's CRE portfolio is multifamily with the remainder being other income-producing CRE and very little construction, which can be problematic in a downturn. However, the growth came at a time of heightened lending competition, which can test underwriting standards and weaken pricing. BankUnited's intended slowdown in CRE lending will help keep this concentration in check, but nevertheless, it is a challenge for the firm's credit profile.
What Could Change the Rating Up
Upward rating movement in the standalone BCA could emerge as its loan portfolio matures and asset quality performance becomes more evident. A moderate pace of loan growth and an improved core funding profile would also be positive.
What Could Change the Rating Down
A significant weakening of BankUnited's asset quality profile would result in negative rating pressure.
The principal methodology used in these ratings was "Banks" published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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