Fitch Ratings on Monday cut its issuer default rating for The South Financial Group and subsidiary Carolina First Bank further into junk territory, citing continuing credit losses and economic stress in Southern markets, The Associated Press reported.
Fitch cut the long-term issuer default ratings for the Greenville, SC-based bank holding company and Carolina First to ‘B+’ from the previous rating of ‘BB+’, Fitch’s highest non-investment grade rating.
Fitch also cut its individual rating for South Financial and Carolina First to ‘D’ – Fitch’s lowest junk rating, signifying a default on obligations – from ‘C/D’, according to the wire service Fitch assigned a “Negative” outlook, signaling a possible further downgrade if conditions worsen.
Fitch said its downgrade “reflects the company’s continued high net credit losses, and elevated and increasing level of problem assets.”
South Financial has lost nearly $750 million since the beginning of 2008, including $569 million last year, much of it from write-offs on bad loans in Florida.
In addition, the company reported nonperforming loans held for investment totaled $464.6 million as of June 30, 2009, a $41.6 million increase from $422.9 million a year earlier, and its nonperforming asset ratio increased to 5.94 percent as of June 30.
Last week, South Financial suspended the dividend payment on its common stock for the first time since paying its first dividend in 1994.
Many areas within South Financial’s geographic base in the South remain under economic stress, Fitch said, noting the company “has been particularly hard hit in its residential construction and development, land, and mortgage portfolios, particularly in Florida and the coastal areas of the Carolinas.”
Fitch said it believes loan losses “will remain elevated” this year and into next year, The Associated Press reported.
Fitch said that South Financial has taken steps to bolster its capital position by issuing stock and selling some assets outside its normal business areas. Although a pending preferred stock exchange could further improve South Financial’s position, Fitch said it believes the company will need to raise more money through a common stock offering next year “given Fitch’s asset quality outlook,” according to the wire service.
Shares of South Financial fell 16 cents Monday, to $1.83 a share.