Investing.com -- Moody's Ratings has upgraded the ratings of Western Alliance (NYSE: WAL ) Bancorporation, including its subsidiaries Western Alliance Bank and Western Alliance Trust Company, N.A. The long-term issuer and subordinate local currency ratings of Western Alliance Bancorporation have been lifted to Baa3 from Ba1. The outlook for these ratings has been changed to stable from positive.

The ratings for Western Alliance Bank have also been upgraded, with long-term issuer and subordinate local currency ratings now at Baa3, up from Ba1. The long-term and short-term local and foreign currency Counterparty Risk Ratings have been elevated to Baa2/Prime-2 from Baa3/Prime-3. The bank's long-term local currency bank deposit rating has been raised to A3 from Baa1. The Counterparty Risk Assessment has been improved to Baa1(cr) from Baa2(cr), and the baseline credit assessment (BCA) and adjusted BCA have been increased to baa2 from baa3.

Western Alliance Trust Company, N.A. has seen similar upgrades. Its BCA and adjusted BCA have been raised to baa2 from baa3, and its long-term and short-term local and foreign currency Counterparty Risk Ratings have been upgraded to Baa2/Prime-2 from Baa3/Prime-3. The long-term Counterparty Risk Assessment has been lifted to Baa1(cr) from Baa2(cr) and the long-term local currency issuer rating has been raised to Baa3 from Ba1.

These rating upgrades reflect the improvements in Western Alliance's financial strategy and risk management over the past two years. The firm has slowed its loan growth, strengthened its capital and liquidity positions, and enhanced its risk infrastructure, policies, and procedures.

Western Alliance's capitalization, as measured by its Moody's Ratings-adjusted tangible common equity (TCE)/risk-weighted assets (RWA) ratio, has grown to 11.2% at September 30, 2024, up from 9.3% at December 31, 2022. The ratio of liquid banking assets/tangible banking assets has increased to 21.8% from 12.4% over the same period. The firm's loan to deposit ratio has also been lowered, reducing its reliance on market funds.

Despite these improvements, Western Alliance continues to face credit risks due to its significant concentration in commercial real estate (CRE) loans. This is particularly the case for office spaces, where it primarily focuses on suburban shorter-term bridge loans for property repositioning or redevelopment. CRE loans represent 2.4 times Western Alliance's tangible common equity (TCE) on a Moody's Ratings-adjusted basis at September 30, 2024.

In response to the improved risk infrastructure and risk governance, Western Alliance's ESG Credit Impact Score has been raised to CIS-3 from CIS-4. The firm's governance issuer profile score has also been favorably adjusted to G-3 from G-4.

The stable outlook reflects Moody's view that while capital will remain within target levels, Western Alliance's risk governance enhancements and depositor diversification strategy are still under development.

Potential factors that could lead to further upgrades of Western Alliance's ratings include a continuation of its risk governance enhancement, a capitalization that exceeds 11.0% throughout the cycle, and a strengthening of its deposit franchise. On the other hand, a downgrade could occur if the capital falls below 11.0%, liquidity weakens, CRE credit costs rise substantially, or if the firm's risk appetite becomes more aggressive.

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