Fitch Affirms Federal Home Loan Bank of Atlanta at 'AAA/F1+'; Outlook Stable

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed long-term and short-term Issuer Default Ratings (IDR) for Federal Home Loan Bank of Atlanta (FHLBATL), along with its other outstanding ratings as follows:

--Long-term (IDR) at 'AAA';

--Short-term IDR at 'F1+';

--Support at '1';

--Support Floor at 'AAA'.

--Individual at 'C'.

The ratings reflect Fitch's assumption of U.S. Government support for the Federal Home Loan Banks System as well as FHLBATL. The Rating Outlook is Stable.

The Federal Home Loan Banks System (FHLBank System) was created by Congress in 1932 and falls under the authority of the FHLBank Act. The Government Sponsored Enterprise (GSE) is comprised of 12 district banks, each serving a designated geographic area of the United States. The FHLBank System's mission is to provide a reliable source of liquidity to financial institutions which, in turn, is used to originate mortgage loans. Through the Office of Finance, the FHLBank System issues consolidated obligations to investors globally. The consolidated obligations are jointly and severally liable between the 12 district banks. Total assets of the combined FHLBank were $903 billion at Sept. 30, 2010.

With $141 billion of assets at Sept. 30, 2010, FHLBATL is one of the 12 banks making up the FHLBank System. FHLBATL is cooperatively owned by its members who provide capital and obtain advances from FHLBATL based on the capital and collateral they provide. Collateral is typically comprised of loans and, to a lesser extent, investment securities. For members, advances serve as funding for new loan originations, a tool for market risk management, and a source of contingent liquidity. In order to ensure adequate security as collateral for its advances, FHLBATL determines advance rates on collateral after applying haircuts. The collateral haircuts are dependant on several factors, including the type of loan or security, the quality of underwriting and credit administration, as well as the member's financial condition. FHLBATL has never had a credit loss, consistently recovering its entire exposure to failed members, including prepayment penalties where applicable. This is despite recent stress in the banking sector, and specifically banking stress within its region leading to approximately 100 member banks being placed into receivership by the Federal Deposit Insurance Corporation since 2007.

Fitch believes that implicit sovereign support for the FHLBank System would be forthcoming due to its important mission as it pertains to homeownership, serving as a source of liquidity to its members and the wide global distribution of FHLBanks debt. As evidenced in the significant increase in consolidated obligations and advances during 2007 and 2008, the FHLB System provided much needed liquidity to its banking members, made possible by its access to the capital markets by virtue of its GSE status. FHLBSF's Support and Support Floor ratings reflect Fitch's view that sovereign support would extend to FHLBATL and its consolidated obligations. Consequently, FHLBATL's long-term IDR is reflective of implicit sovereign support.

The Individual Rating communicates Fitch's view of the stand-alone risk that FHLBATL poses to the FHLBATL System and does not reflect the benefit FHLBATL may receive directly through sovereign support. The financial condition of FHLBATL has generally been strong. Investments in private label MBS (totaling $10.1 billion or 7% of total assets at Sept. 30, 2010), have placed pressure on operating performance and capital through the accumulated other comprehensive income account. Total recognized other than temporary impairment in 2009 totaled $1.3 billion, of which $316 million was recognized as a credit loss. Through the first nine months of 2010, FHLBATL had an additional $200 million of loss on this portfolio. Somewhat offsetting the risks posed by PLMBS, FHLBATL's regulatory capital compares favorably to other FHLBs even as FHLBATL has been paying a modest dividend and, in 2010, repurchased a modest amount of excess member stock.

The Stable Outlook reflects Fitch's view of relative stability of FHLBATL's risk profile and a continued ability to minimize losses on its advances. Fitch will monitor future regulatory and legislative actions for indications of a change to the likelihood of support for the FHLBATL System. A significant deviation of implicit support or stature of the FHLBanks System may result in Fitch re-evaluating its ratings on FHLBATL.

Additional information is available at www.fitchratings.com.

In addition to the source(s) of information identified in the Master Criteria, this action was additionally informed by information provided by the company.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);

--'Short-Term Ratings Criteria for Corporate Finance' (Nov. 2, 2010).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

Short-Term Ratings Criteria for Corporate Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726

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