Wisconsin Banking News

Fitch says M&I faces serious ‘headwinds’; Elan acquires Associated Bank’s credit card portfolio

Fitch says M&I faces serious ‘headwinds’

Fitch Ratings has placed the Issuer Default Rating (IDR) and debt ratings of Milwaukee-based Marshall & Ilsley Corp. (MI) and its subsidiary banks, including M&I Bank, on Rating Watch Negative.

The long- and short-term IDRs at MI and its subsidiary banks are currently "BBB+" and "F2," respectively.

In a research note for investors, Fitch wrote that Marshall & Isley faces significant "headwinds" in its efforts to return to profitability. Marshall & Ilsley lost $211.4 million in the second quarter.

Here is the complete investment note about Marshall & Ilsley from Fitch:

"Given recent asset quality trends, Fitch is conducting a review focused on MI’s asset quality challenges and specifically how that correlates with future provisioning needs and in turn profitability. To date, elevated loan loss provisions, as the company continues to build reserve levels amidst deteriorating credit quality and high net charge-offs, have hampered the company’s return to profitability. MI has faced severe headwinds in controlling growth in its level of nonperforming assets (NPAs). MI’s NPA ratio at 7.5% (including renegotiated loans) exceeds levels seen at peers. The rate of increase in problem loan levels has also exceeded peers in recent quarters despite MI’s significant charge-offs and an active loan sale program. MI has sold about $1.6 billion of problem loans since first quarter-2008 (1Q’08). The company’s challenges with elevated levels of problem assets largely stem from its outsized construction and land development (C&LD) portfolio, especially in hard hit Arizona. The $7 billion C&LD portfolio represents 14% of total loans, reduced from a peak of 23% in 3Q’07. Additionally, the elevated level of problem loans and sizable commercial real estate exposures beyond the aforementioned C&LD potentially places more challenges in front of MI to restore profitability and maintain capital at levels that are consistent with assigned ratings. Fitch is currently evaluating loan quality indicators to determine if MI has taken sufficient actions to stem the tide of new problem loans and reduce the need for incremental reserve build. If Fitch does not find sufficient evidence that trends in asset quality are expected to stabilize in the near-term, a downgrade of MI’s ratings is likely. Fitch does not expect IDRs would be downgraded below investment grade and anticipates its review will be completed before the end of 3Q’09."

Elan acquires Associated Bank’s credit card portfolio

Associated Bank’s credit card portfolio has been acquired by Minneapolis-based Elan Financial Services, which has entered into a strategic partnership with the Green Bay-based bank to provide its consumer and commercial customers with a suite of credit card services.

Associated Bank’s credit card portfolio was owned by CitiBank.

"Elan became the obvious choice as we looked for the right provider for our credit card business. Elan knows our markets well and will provide our customers with best-in-class products and service. We are excited about this new partnership," said Valentine Glytas, senior vice president and director of consumer lending services at Associated Bank.

"Associated Bank is a premier partner, with a strong brand and a loyal customer base," said Jeff Chernivec, senior vice president and market director at Elan Financial Services. "Elan continues to focus on developing strategic partnerships in the agent financial institution market. We are extremely pleased to partner with Associated Bank."

By purchasing Associated Bank’s credit card portfolio, Elan provides behind-the-scenes support and structure for the program, which will continue to be branded and marketed under the Associated Bank name with the common goal of growing the portfolio. The portfolio will be converted in the second quarter of 2010, and all of the new products and services will be made available to clients at that time.


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