Fitch Ratings has maintained the Rating Watch Positive (RWP) on Bank of the West's (BOW) 'A' Long-Term Issuer Default Rating (IDR), which was first initiated following the announced sale to Bank of Montreal (BMO).

See 'Fitch Places Bank of the West on Watch Positive Following Announced Sale to BMO' (Dec. 21, 2022) at www.fitchratings.com for more details. Fitch expects to resolve BOW's Rating Watch upon successful completion of the transaction with BMO, anticipated to take place by the end of 2022, subject to customary approvals and conditions.

Fitch's current view of hypothetical extraordinary shareholder support flowing from BNP Paribas S.A. (BNPP) to BOW is the driver of the current level of BOW's Long-Term IDR. Today's action follows the recent affirmation of BNPP's Long-Term IDR/Stable Outlook. See 'Fitch Affirms BNP Paribas' Long-Term IDR at 'A+'; Stable Outlook' (Sept. 13, 2022) at www.fitchratings.com for details on BNPPs ratings.

Key Rating Drivers

RWP On Pending Deal: Upon successful completion of the sale to BMO (AA-/Negative), Fitch anticipates that BOW's ratings will be driven by shareholder support flowing down from BMO. The Long-Term IDR of BMO's U.S. bank subsidiary (namely BMO Harris Bank, N.A.) is currently 'AA-/Negative, driven by the assigned Shareholder Support Rating (SSR) of 'aa-'. See 'Fitch Affirms Bank of Montreal at 'AA-'; Outlook Negative' (July 11, 2022) at www.fitchratings.com for details. It is likely that BOW's SSR will be assigned at the same rating level as BMO Harris Bank, N.A., which is the driver of the RWP on BOW's Long-Term IDR, SSR and other related ratings.

RWP Taken Off VR: Fitch has removed BOW's VR from Positive Watch. Fitch anticipates that BOW's VR will be withdrawn upon successful completion of the sale. Fitch does not maintain a VR on BMO Harris Bank, N.A. and therefore plans to apply the same methodology on BOW under BMO ownership. This is the driver of the removal of the Watch on BOW's VR. Until the merger closes, the VR is driven by BOW's standalone credit profile, which incorporates the benefit of ordinary support from ownership under BNPP.

Support Drives Current Ratings: BOW's support-driven Long-Term IDR is rated one notch below its parent BNP Paribas S.A. (BNPP)'s Long-Term IDR 'A+', and reflects the higher of its 'a' Shareholder Support Rating and its 'a-' standalone Viability Rating (VR). While the sale is pending, Fitch believes that BNPP would still provide support to BOW for reputational reasons, should the need arise. In terms of revenue generation, the U.S. is BNP's largest market outside of Europe, which supports Fitch's view that the U.S. is a strategically important market for the parent, though not necessarily a core market.

Strong Capital Drives VR: BOW's VR is supported by the bank's above-peer CET 1 capital ratio that stood at 13.2% as of 2Q22 compared to the peer median of 9.4%. BOWs asset quality has also held up well and continued on an improving trend in line with the industry. Earnings remain a structural weakness but have benefited in recent quarters from negative credit provisions that has driven an operating profit/RWA of 1.6% for the 1H22.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

In the event that the transaction with BMO is unsuccessful, Fitch will remove the RWP on the affected ratings and at that time reassess shareholder support and the VR to determine the appropriate ratings.

If BNPP's ratings are downgraded while BOW is still under BNPP ownership, BOW's Long-Term IDR could also be negatively affected. BOW's ratings are also sensitive to a downgrade of its Shareholder Support Rating, which in turn is sensitive to Fitch's assessment of shareholder support.

The VR will likely be withdrawn upon the sale. Until then BOW's VR is solidly situated at its current level. The VR is sensitive to reduction in capital levels as measured by the CET 1 ratio. If it drops to, or approaches 10%, negative ratings pressure could develop.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

With BOWs ratings currently on RWP, they are likely to be upgraded upon close of the pending transaction. Fitch expects the resolution of the Rating Watch may occur subsequent to six months in the future, outside of Fitch's normal Rating Watch time horizon.

Until the close of the transaction, BOW's Long-Term IDR (and dependent ratings) are directly linked to BNPP's ratings. If BNPP's ratings are upgraded while BOW is still under BNPP ownership, BOW's Long-Term IDR could also be positively affected. BOW's ratings are also sensitive to an upgrade of its Shareholder Support Rating, which in turn is sensitive to Fitch's assessment of shareholder support.

The VR will likely be withdrawn upon the sale. Until then, BOW's VR is solidly situated at its current level under BNPP ownership. Over the long-term, upward momentum on the VR would be dependent on stable capital levels combined with notable improvement in earnings and profitability such that a migration in the Earnings and Profitability factor score to the 'a-category' is supported.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS

BOW's Long-Term IDR maps to a baseline 'F1' Short-Term IDR, in accordance with Fitch's Bank Rating Criteria.

BOW's Long-Term Deposit Ratings for its uninsured deposits are one notch higher than the company's Long-Term IDR, which reflects depositor preference for U.S. banks and the superior recovery prospects for deposits resulting from depositor preference.

BOW's Short-Term Deposit Rating was affirmed at 'F1'. This rating is linked to the Long-Term Deposit Rating per Fitch's rating criteria and maps to a baseline of 'F1' and a higher rating of 'F1+'. Fitch maintains a baseline 'F1' Short-Term Deposit Rating for BOW. BOW's funding and liquidity factor score (absent extraordinary support) is 'a- '. The minimum Funding & Liquidity' factor score for the higher 'F1+' is 'aa-'. BNPP's Funding and Liquidity Factor Score is 'a+'.

With the RWP, BOW's ratings are likely to be upgraded upon close of the pending transaction.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

OTHER DEBT AND ISSUER RATINGS SENSITIVITIES

VR ADJUSTMENTS

BOW's VR is rated in line with the 'a-' implied VR.

The Asset Quality score has been assigned below the implied score due to the following reason(s): Historical and Future Metrics.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

The ratings of BOW are linked to the ratings of ultimate parent BNP Paribas S.A.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

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