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Western Alliance Bank -- Moody's affirms Western Alliance's ratings (deposits A2/Prime-1) following acquisition announcement, maintains stable outlook

·15 min read

Rating Action: Moody's affirms Western Alliance's ratings (deposits A2/Prime-1) following acquisition announcement, maintains stable outlookGlobal Credit Research - 18 Feb 2021New York, February 18, 2021 -- Moody's Investors Service ("Moody's") has affirmed Western Alliance Bank's Baa2 long-term issuer rating and A2/Prime-1 long- and short-term deposit ratings together with its baa1 standalone baseline credit assessment (BCA). The rating outlook for Western Alliance Bank remains stable.The ratings affirmation follows Western Alliance's announcement that it intends to acquire Aris Mortgage Holding Company, LLC, the parent company of AmeriHome Mortgage Company, LLC ("AmeriHome"), a large US residential mortgage company, for an estimated purchase price of $1.0 billion in cash."The Amerihome acquisition does not materially alter Western Alliance's credit profile and we expect the bank to rebuild its capitalization over the next 12-18 months," said Megan Fox, an assistant vice President at Moody's. "The acquisition will improve the bank's earnings quality because Amerihome can contribute a meaningful amount of fee revenue, bolstering its profitability during prolonged periods of low interest rates," Ms. Fox added.Affirmed:..Issuer: Western Alliance Bank.... Adjusted Baseline Credit Assessment, Affirmed baa1.... Baseline Credit Assessment, Affirmed baa1.... Long term Counterparty Risk Assessment, Affirmed A3(cr).... Short term Counterparty Risk Assessment, Affirmed P-2(cr).... LT Counterparty Risk Rating, Affirmed Baa1.... ST Counterparty Risk Rating, Affirmed P-2.... Long term Deposit Rating, Affirmed A2, stable.... Short term Deposit Rating, Affirmed P-1.... LT Issuer Rating, Affirmed Baa2, stable.... Subordinate, Affirmed Baa2.... Outlook, Remains StableRATINGS RATIONALEThe ratings affirmation reflects Moody's view that the acquisition of AmeriHome will not materially alter Western Alliance's credit profile. AmeriHome is a large US residential mortgage company that primarily serves as a correspondent loan acquirer and servicer. In 2020, AmeriHome purchased $65 billion of residential mortgage originations and had a servicing portfolio of $99 billion as of year-end.While the all-cash transaction will reduce Western Alliance's capitalization, Moody's expects the bank will rebuild its capital position by retaining its enhanced earnings. Western Alliance estimates its Common Equity Tier 1 (CET1) ratio will decline to 9.1% following the close of the acquisition, down from 9.9% at year-end 2020. Positively, Western Alliance plans to issue $275 million in common stock to offset the goodwill created by the acquisition. The bank forecasts its year-end 2021 CET1 ratio to improve to 9.8%. The stable rating outlook incorporates Western Alliance's commitment to rebuilding its capital position following the acquisition over the next 12-18 months.Western Alliance's BCA and ratings are supported by its strong balance sheet, good core deposit funding and high earnings power. They also incorporate elevated asset risk, mitigated by its sound capitalization and strong profitability enabling the bank to absorb unexpected losses.Western Alliance's strong profitability is supported by its very good operational efficiency and still high net interest margin (NIM) despite low interest rates. Western Alliance's earnings have historically relied heavily on spread income, which is vulnerable to low interest rates. Moody's expects the AmeriHome acquisition will increase the bank's earnings quality because it will contribute a meaningful amount of fee revenue, bolstering its profitability during prolonged periods of low interest rates. Importantly, AmeriHome's ability to effectively hedge its mortgage servicing rights (MSRs) will help reduce volatility in earnings.Western Alliance's liquidity and funding profile is a key credit strength supporting its ratings. The bank has a very low amount of confidence-sensitive market funding owing to its core deposit funding base. Western Alliance, like many US banks, has experienced very strong deposit growth in 2020 funding its very high loan growth. It has also grown its on balance sheet liquidity which will in part be used to fund the acquisition of AmeriHome. The use of cash to fund the transaction is in line with Moody's expectation that Western Alliance would seek to deploy excess liquidity in growth opportunities.Moody's views US banks as facing a challenging though improving operating environment, rising asset risk and ongoing profitability pressures. Even so, the stable outlook on Western Alliance ratings reflects Moody's view that the bank will maintain its robust credit profile despite its elevated commercial real estate (CRE) exposure and will rebuild its capital position following the acquisition of AmeriHome over the next 12-18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSWestern Alliance's BCA and ratings could be upgraded if the bank demonstrated a disciplined risk appetite through a sustained reduction in its CRE concentration, a reduction in the construction and land development component, a materially slower pace of loan growth and improved loan granularity provided good capitalization is maintained.Western Alliance's BCA and ratings could be downgraded if its capital position is not restored in the 12 months following the acquisition of AmeriHome, or if asset quality or profitability deteriorated beyond Moody's current expectations.The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Megan Fox AVP-Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 M. Celina Vansetti-Hutchins MD - Banking Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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