Standard & Poor's has changed its outlook on the future prospects of the Seattle Federal Home Loan Bank to "negative" from "stable," citing risks posed by its private-label securities portfolio and the bank's capital position.
The Seattle bank's is the only FHLB that S&P has tagged with a negative outlook. S&P analysts note that the Seattle bank is the smallest of the 12 FHLBs, but its $4.5 billion PLS portfolio is "higher risk" than the other banks.
"We are most concerned about non-agency alt-A residential mortgage-backed securities, which comprise 86% of this portfolio," the credit rating agency said.
S&P analysts also note that the GSE regulator continues to classify the Seattle bank as "undercapitalized" even though it is fully compliant with all capital requirements. In changing its outlook to negative, S&P affirmed its AA+/A-1 counterparty credit rating on the Seattle FHLB. "If the bank's capital position deteriorates due to possible additional credit losses associated with its private-label MBS portfolio, we could lower the rating further," S&P said.
