The agency made the change in response to credit concerns about the bank’s commercial real estate portfolio. Those concerns are centered around the “portfolio’s growth which accentuates its CRE credit concentration.” A Moody’s news release pointed to the growth of the portfolio as a challenge to “the bank’s ability to maintain prudent underwriting.”
“Many cases of bank failure show a rate of loan growth higher than the market average,” Megan Snyder, an analyst at Moody’s told Commercial Observer via email. “Higher-than-average loan-growth rates suggest lower underwriting standards and a more aggressive strategy, the consequences of which in terms of asset quality are only revealed in a downturn, meaning that in a less favorable market People’s asset quality metrics could be weaker when compared to its historical strong record.”
The report from the rating agency noted that the bank’s commercial real estate portfolio grew by 9 percent annualized, and as of Sept. 30, 2015, the portfolio equaled 3.6 times its tangible common equity base, which is among the highest of U.S. banks.
The Moody’s downgrade comes on the heels of a recent story by CO that revealed internal fraud at People’s United. The rating agency did not make mention of a connection between the two, but the report emphasized that recent commercial real estate portfolio growth led to its concerns.
The Connecticut-based bank recently dismissed a regional manager and two other employees in its Happauge, N.Y. office after an in-house audit this spring revealed more than one instance of internal fraud.
The audit showed multiple transactions with more favorable conditions than the bank had originally granted. One loan that had altered terms was provided to a publicly traded company, sources told CO.
People’s United Bank operates more than 400 branches in the Northeast and Mid-Atlantic region, and its parent company, People’s United Financial, is a public corporation with more than $37 billion in assets.
A spokeswoman for the bank declined to comment.