KBRA Places Ratings for Webster Financial Corporation on Watch Upgrade Following Merger Announcement

KBRA places the ratings for Connecticut-based, Webster Financial Corporation (NYSE: WBS) ("Webster" or "the company") on Watch Upgrade, including the senior unsecured debt rating of A-, the subordinated debt rating of BBB+, the preferred stock rating of BBB, and the short-term debt rating of K2 following the announcement on February 3, 2026, that Banco Santander, S.A. (NYSE: SAN, Madrid: SAN) ("Santander") has an agreement to acquire Webster in a cash-and-stock transaction. In addition, KBRA places the ratings for principal subsidiary, Webster Bank, N.A., on Watch Upgrade, including the deposit and senior unsecured debt ratings of A, the subordinated debt rating of A-, and the short-term deposit and debt ratings of K1.

Key Credit Considerations

The Watch Upgrade is facilitated by Webster’s agreement to be acquired by Santander, and the view that the combination of Webster and SHUSA will further increase the strategic significance of U.S. banking operations for the Spanish Global Banking company. Santander’s agreement to acquire Webster Financial Corporation is for $12.2 billion of cash and stock (~65% / 35% split) is a proposed strategic transaction to combine its U.S. Bank Holding Company – Santander Holdings USA, Inc. (“SHUSA”) – and its subsidiary bank (Santander Bank N.A.; “SBNA”) with Webster, and its principal subsidiary, Webster Bank N.A. At YE25, Santander reflected ~USD $2.2 trillion of globally diversified assets, including ~USD $640 billion in Spain (its home country), ~USD $370 billion in the U.K., ~USD $460 billion in Mexico and South America, among other regions. With ~USD $132 billion of total equity and a 13.5% CET1 ratio at YE25, Santander generated a reported ROA of ~0.85% (as well as a RORWA of ~2.4%) for FY25. Additionally, despite some potential modest core capital depletion associated with the acquisition – currently expected to close in 2H26 – Santander notes that it expects to have its CET1 measure back approaching 13% by YE26.

Santander, through SHUSA, entered the U.S. Banking market in a tangible way in 2009, completing its acquisition of then ~$77 billion-asset Sovereign Bancorp (PA), which followed an initial 24% investment in the company in 2006. At 3Q25, SHUSA reflected $168 billion of assets; ~$100 billion of which were at its subsidiary bank, with the majority of the rest at its indirect auto lending subsidiary, Santander Consumer Finance. In addition to what we consider to be a favorable strategic combination, Webster brings a stronger, recent-year core operating performance track record (mostly a ~1.1-1.3% core ROA) to the proposed combination, also adding diversification to SHUSA’s meaningful indirect auto business (~$43 billion of receivables, representing 26% of the total loans) given the former’s commercially-oriented portfolio. Northeastern branch overlap between the two companies is an important element of projected cost savings, as well as a strong prospective earnings outlook for the ~$250 billion-asset institution post-merger. Webster’s two top executives – John Ciulla (CEO) and Luis Massiani (President and COO) – will be joining SHUSA in senior roles; the former becoming the CEO of SBNA, and the latter, as COO of both SHUSA and SBNA (note: reporting to both Mr. Ciulla, as well as SHUSA CEO, Christiana Riley).

Webster’s ratings have been supported over a multiyear period by a well-executed regional banking business model that benefits from and is differentiated most by its scale and highly competitive HSA Bank division. An experienced and capable management team, together with a disciplined approach to credit underwriting and effective risk management, remain instrumental to ratings. While Webster’s C&I portfolio includes a meaningful component of sponsor-driven, sometimes more leveraged exposures; notably, the segment has been a core competency of the company for ~20 years. Capabilities with respect to CRE credit risk management are considered similarly strong, increasingly important given industry asset class performance trends and some degree of concentration.

Webster’s HSA Bank – with $9.2 billion of deposits at 4Q25 (0.15% cost) – has been a highly advantageous business segment for some time, with magnified importance in the industry’s challenging 1H23. In January 2024, Webster acquired Ametros Financial Corp. (“Ametros”), the leading administrator of medical claim settlements, an additional source of low cost deposits with a healthy growth trajectory. Helped by these very low cost of deposits (HSA bank and Ametros), with ~$10 billion of NIB balances, together representing ~30% of Webster’s 4Q25 base, the increase in the company’s total deposit cost was muted during 2022-2024, and finished YE25 at <2% total cost.

Having built core capital during 2023 (CET1 to 11.1% at YE23), Webster’s $350 million cash purchase of Ametros in 1Q24 moved this measure back to the company’s long-term CET1 target (~10.5%). However, relative core was rebuilt by YE24 (CET1 to 11.5%) and remained >11% during FY25.

Rating Sensitivities

Following merger close (expected 2H26), we will assess the financial profiles of SHUSA and ultimate parent (Santander), as well as merger integration planning and execution, to determine the potential for an upgrade. An unexpected deterioration in Webster / SHUSA’s operating performance, with unexpected asset quality deterioration, could lead to less positive momentum in ratings.

To access ratings and relevant documents, click here.

Methodologies