DBRS Places The South Financial Group, Inc. Ratings Under Review with Negative Implications

DBRS has today placed the long - and short-term ratings of The South Financial Group, Inc. (The South or the Company) and its related entities, including The South’s Issuer & Senior Debt rating of BBB (low), Under Review with Negative Implications.

The review will focus on The South’s ability to cope with its continued asset quality deterioration. Over the past year, The South has faced elevated credit costs and lack of profitability, due to its weakened Florida commercial real estate portfolio, which has been negatively impacted by the severe downturn in the housing and mortgage markets. Moreover, DBRS is concerned with the higher risk nature of the Company’s significant commercial real estate concentration. The South’s recent performance has also been negatively impacted by its narrowing net interest margin (NIM), and goodwill impairment.

Positively, The South has been able to convert roughly $60 million of its $250 million Mandatorily Convertible Preferred Stock into common shares, which enhanced its capital position and loss absorption capacity. Moreover, the Company received a $347 million investment from the U.S. Treasury, as part of its Capital Purchase Program. Nonetheless, elevated credit costs will continue to pressure its capital position.

DBRS perceives that significant amounts of potential losses remain embedded in The South’s core portfolio, particularly within its residential construction and mortgage portfolios. Credit costs exceed The South’s core income before provisions and taxes and continue to invade capital. Furthermore, the extremely difficult operating environment and the weakness in the economies in The South’s franchise are likely to continue to constrain revenue growth and pressure expenses, limiting improvement in core earnings.

DBRS’s review will focus on The South’s asset quality, capital adequacy and franchise strength. In addition, the review will also consider the Company’s prospective financial performance in the near term.

DBRS notes that a one or two notch downgrade could result if the review suggests performance and metrics are more consistent with a lower rating. DBRS expects to conclude the review within 90 days.

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

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.