DBRS Morningstar Confirms Citizens Financial Group, Inc. at A (low); Trend Revised to Stable

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of Citizens Financial Group, Inc. (Citizens or the Company), including the Company’s Long-Term Issuer Rating of A (low). At the same time, DBRS Morningstar confirmed the ratings of its primary banking subsidiary, Citizens Bank, National Association (the Bank). The trend for all long-term ratings at the Company has been revised to Stable from Positive and the trend for both long and short-term ratings at the Bank has been revised to Stable from Positive. The Intrinsic Assessment (IA) for the Bank is ‘A’, while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
The revision of the trend from Positive to Stable reflects the wide and growing scale of the economic disruption resulting from the Coronavirus Disease (COVID-19) pandemic, which has pressured the operating environment and will negatively impact the Company’s earnings and asset quality. Nevertheless, unprecedented support measures have been put in place through monetary and fiscal stimulus, as well as relaxed criteria from regulators, which will mitigate some of the negative impact of the crisis.

The ratings confirmation reflects Citizens’ strong regional banking franchise, with competitive positions in affluent and economically diverse markets across New England, the Mid-Atlantic, and Upper Midwest. Citizens maintains the second largest deposit market share in New England. The franchise also benefits from several national consumer lending platforms, including retail, auto and education finance lending, which are primarily focused on prime borrowers, as well as commercial lending. Citizens’ asset quality, solid funding, liquidity and capitalization provide further support for the Company’s ratings. However, Citizens’ earnings remain somewhat more reliant on spread income, as compared to other regional banks.

RATING DRIVERS
While DBRS Morningstar views Citizens as being in the top tier of its rating category, an upgrade to the ratings is not expected in the near term given the current operating environment. Conversely, a prolonged adverse impact of the coronavirus resulting in a sustained deterioration in asset quality, or prolonged negative operating leverage, could result in a ratings downgrade.

RATING RATIONALE
Citizens is well positioned to handle the uncertainty inherent in the current economic environment. In 2019, Citizens generated revenue growth and executed on expense initiatives, which resulted in positive operating leverage. The Company’s well-established deposit franchise is the anchor of the funding profile. Additionally, Citizens’ digital bank, Citizens Access, creates an additional platform to raise deposit funding on a national level. Reflecting capital management activities, capital ratios have trended closer towards the peer group average through buybacks, an increased dividend payout ratio, as well as organic growth. As of December 31, 2019, the Company’s Basel III fully phased-in Common Equity Tier 1 ratio was a still solid 10.0%. DBRS Morningstar notes that the Company has suspended its stock buyback program through June 2020.

Headquartered in Providence, Rhode Island, Citizens Financial Group, Inc. reported $165.7 billion in consolidated total assets as of December 31, 2019.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

The Grid Summary Grades for Citizens are as follows: Franchise Strength – Strong; Earnings Power – Good; Risk Profile – Good; Funding & Liquidity – Strong; Capitalisation – Strong/Good.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations, 11 June 2019 (https://www.dbrsmorningstar.com/research/346375/global-methodology-for-rating-banks-and-banking-organisations), which can be found on our website under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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