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BOK Financial Ratings Affirmed by Moody's, Outlook Negative

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BOK Financial Corporation BOKF and its bank subsidiary BOKF, NA’s ratings have been affirmed by Moody’s Investors Service — the rating services arm of Moody's Corporation MCO. The subsidiary is rated a2 standalone baseline credit assessment (BCA) and Aa3/Prime-1 for deposits. Also, the holding company’s issuer rating of A3 has been affirmed.

However, the outlook for the company and its subsidiary has been downgraded to ‘negative’ from ‘stable’. This downward revision reflects high energy concentration with outstanding energy loans equivalent to 109% of the company’s Moody’s-adjusted tangible common equity (TCE) as of Dec 31, 2019.

Moreover, amid coronavirus crisis, Moody’s expects reduced oil product demand and the supply shock on disagreement among the OPEC and oil-producing countries to strain oil prices throughout 2020.

Reasons for Ratings Affirmation

Per Moody's, the company’s ratings affirmation reflects strong liquidity and     adequate capitalization anticipated to aid BOK Financial's buoyancy to unexpected losses. Also, the ratings agency was impressed by the company’s historical good asset quality performance.

Credit effects of the coronavirus pandemic, weakening global economic outlook, fall in oil prices and asset-price declines is unprecedented, per Moody’s. Notably, BOK Financial's energy exposure, highest among rated U.S. banks, is mainly concentrated to the exploration and production (E&P) sector, sensitive to demand and oil prices, which is expected to be stressed in the second or third quarters of 2020.

Additionally, in absence of any clarity over conditions to improve, Moody's predicts low oil prices to prevail in 2020 and likely to recover in 2021, depending on the normalization of economic activity, international trade and supply-chain disruptions.

Therefore, BOK Financial's energy portfolio is likely to be strained under the current low oil prices. Though high exposure to energy loans poses a concern, the firm’s good underwriting, as seen by its strong track record in energy-price downturn compared to peers, is a tailwind.

Furthermore, profitability benefits from healthy fee-based revenues, which provides some level of resilience in its earnings profile in a low interest-rate environment. BOK Financial’s funding profile benefits from a stable core deposit base. In addition, the bank has sizeable holdings of liquid assets, which support its strong liquidity profile.

Factors That Might Trigger Change in Ratings

Upward movement in ratings depends on substantial and sustained improvement in capitalization, asset quality metrics and profitability with BOK Financial's energy portfolio reflecting resilience to the oil-price shock.

Meanwhile, a downward ratings movement could occur if the company’s profitability and asset quality are significantly impacted amid low oil prices and the global economic shock.

Shares of the company have depreciated 44.6% in the last six months compared with the 32.4% decline recorded by the industry.

BOK Financial currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Northrim BanCorp Inc NRIM has witnessed upward earnings estimate revisions for 2020 over the past 60 days. Moreover, this Zacks #2 Ranked (Buy) stock has lost 30.2% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First Western Financial, Inc.’s MYFW current-year earnings estimate moved north in 60 days’ time. Further, the company’s shares have declined 14.3% over the past six months. At present, it sports a Zacks Rank of 1.

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Moody's Corporation (MCO) : Free Stock Analysis Report
BOK Financial Corporation (BOKF) : Free Stock Analysis Report
Northrim BanCorp Inc (NRIM) : Free Stock Analysis Report
First Western Financial, Inc. (MYFW) : Free Stock Analysis Report
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