Fitch Lowers Debt Rating on Some First Interstate Units

Fitch Investors Service lowered its ratings on debt for First Interstate’s Arizona and California units Monday, mainly because of increasing problems in the Arizona real estate market.

The rating on First Interstate Bank of Arizona capital debentures was lowered to BBB-plus from AA-minus; the rating on capital notes issued by First Interstate Bank of California dropped to A from AA-minus. First Interstate Bank of Arizona’s non-performing assets have more than doubled to $365 million since the start of the year because of the soft real estate market there, Fitch said.

Although First Interstate’s earnings have improved in California, officials at the rating service said they believe that the bank’s Los Angeles-based parent, First Interstate Bancorp, may become increasingly dependent on that unit to support weaker affiliates in Texas, Colorado and Arizona.

A First Interstate spokesman said the bank was disappointed by Fitch’s action but noted that it follows similar moves by the other major rating agencies, Standard & Poor’s and Moody’s Investors Service. The spokesman added that First Interstate’s exposure to the softening Arizona real estate market is low compared to other banks operating there.