Fitch Ratings downgrades M&I’s long-term default rating

Fitch Ratings yesterday downgraded the long-term issuer default rating of Milwaukee-based Marshall & Ilsley Corp. and its subsidiary banks to BBB+ from A+. The company’s individual rating was also cut to C from B, and it was assigned a negative outlook rating.

Marshall & Ilsley Corp. recently reported a net loss of $116.9 million, or a loss of 44 cents per share, for the first quarter compared to net gain of $146.2 million, or 56 cents per share, for the first quarter of 2008. It was the company’s third net loss in four quarters, Fitch Ratings noted, “largely reflecting elevated loan loss provisions as the company continues to build reserve levels amidst deteriorating credit quality.” Marshall & Ilsley continues to experience losses related to construction and development loans in Arizona and western Florida, Fitch also notes.

After releasing M&I’s first quarter earnings last week, Mark Furlong, president and chief executive officer, said the company is well positioned to weather economic conditions.

"M&I remains well positioned to continue supporting our customers and prospects as they address the current economic environment," Furlong said. "Our first quarter results reflect the extent to which the current recession, and particularly the housing slowdown, continues to impact our company. Although these are disappointing results, our excess capital, strong liquidity position, and high levels of reserves will keep us ahead of the industry’s challenges."

The company said it "aggressively addressed credit issues by writing down problem credits and strengthening (its) balance sheet," with a loan loss provision of $478 million.

M&I’s average loans and leases totaled $49.8 billion for the first quarter of 2009, increasing $1.2 billion or 2.5 percent compared to the first quarter of 2008.

Fitch notes that M&I’s nonperforming assets have remained as high as six percent on March 31, and these assets have risen about 200 percent over the past year.

“An outsized exposure to C&LD lending, combined with a deteriorating economy and continually declining land values, have created economic headwinds in the company’s ability to expeditiously work through problematic loans,” Fitch states. “Supporting the rating action, Fitch expects that M&I’s C&LD book will lead to continued levels of elevated credit costs over the near term, which could impede a return to probability.”

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