Fitch: First Horizon DOJ Settlement Credit Neutral

First Horizon National Corp. (FHN) ratings are unaffected by its recent announcement that it has reached an agreement in principle with the Department of Justice (DOJ) and the Department of Housing and Urban Development (HUD), according to Fitch Ratings.

The agreement relates to FHN's underwriting and origination of FHA-insured mortgage loans from Jan. 1, 2006, through Dec. 31, 2008. Fitch had been expecting the DOJ/HUD settlement to occur in 2015 and that it would not result in capital ratios falling to levels below management's long-term targets.

Under the agreement, FHN will pay cash of $212.5 million to settle. The company had previously reserved $50 million for this particular matter and expects to report a pre-tax expense of $162.5 million related to the agreement in its 1Q15 results.

This follows FHN's 4Q13 settlement with Fannie Mae (FNMA) and its announced settlement with Freddie Mac in 1Q14 pertaining to loans sold during a similar time period. Those announcements resulted in a $200 million provision to FHN's mortgage repurchase reserve to account for the FNMA settlement as well as estimation for the FHLMC settlement.

While credit neutral overall, Fitch generally views these settlements as positive steps forward for FHN in getting out from under various legal overhangs that resulted from past national mortgage lending strategies.

Fitch believes that much of FHN's legal overhang is now behind it, save for a couple other minor settlements that could occur related to legal issues already disclosed in the company's regulatory filings. This should aid in the company generating stronger core earnings as legal costs diminish over time. Still, even with the possibility to other settlements out there, Fitch's expectation that FHN will maintain reasonable capital levels relative to its overall risk profile is incorporated in the company's current ratings and outlook.

Additional information is available at 'www.fitchratings.com'.

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