NEW YORK, Feb 27 (Reuters) - Moody's Investors Service on Friday cut its ratings on Citigroup and Standard & Poor's changed the bank's outlook to negative after news the U.S. government will boost its equity stake in the bank to as much as 36 percent.
The capital injection is the third attempt by the government to prop up Citigroup in the past five months. For details, see.
Moody's cut Citigroup one notch to 'A3,' the seventh highest investment grade, from 'A2.' Its senior subordinated debt and junior subordinated debt were also cut to 'Baa1,' the third lowest investment grade, and 'Baa3,' the lowest investment grade, respectively, both from 'A3.'
The downgrades reflect an expectation that 'the current level of government support notwithstanding, Citigroup will emerge from the current economic crisis with a different mix of core businesses and a smaller scale,' Moody's said in a statement.
This, 'could diminish its relative importance to the U.S. banking system over the long run,' Moody's said.
Standard & Poor's confirmed Citigroup's rating at 'A,' the sixth highest investment grade. A negative outlook, however, indicated a rating downgrade is more likely over the next one to two years.
'The affirmation reflects our belief that, with completion of the proposed recapitalization, there will be a significant boost to Citi's capital adequacy,' S&P said in a statement.
However, if 'contrary to our current expectations, Citi's turnaround strategies (which entail significant execution risk) are unsuccessful, debtholders could eventually be required to participate in further government-led restructuring actions,' S&P said.
Both agencies also slashed their ratings on some of Citigroup's preferred shares to deep into junk territory, citing the suspension of dividends on the securities, which will pressure holders to exchange the stock at less than its par value.
Moody's cut Citigroup's preferred stock to a deeply speculative grade of 'Ca,' 10 steps below investment grade, from 'Baa3,' the lowest investment grade. S&P cut the shares to 'C,' a step above default, from 'BB.'
(Reporting by Karen Brettell; Editing by Jonathan Oatis) Keywords: CITIGROUP RATING/MOODYS (karen.brettell@thomsonreuters.com; +1 646 223 6274; Reuters Messaging: karen.brettell.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The capital injection is the third attempt by the government to prop up Citigroup in the past five months. For details, see.
Moody's cut Citigroup one notch to 'A3,' the seventh highest investment grade, from 'A2.' Its senior subordinated debt and junior subordinated debt were also cut to 'Baa1,' the third lowest investment grade, and 'Baa3,' the lowest investment grade, respectively, both from 'A3.'
The downgrades reflect an expectation that 'the current level of government support notwithstanding, Citigroup will emerge from the current economic crisis with a different mix of core businesses and a smaller scale,' Moody's said in a statement.
This, 'could diminish its relative importance to the U.S. banking system over the long run,' Moody's said.
Standard & Poor's confirmed Citigroup's rating at 'A,' the sixth highest investment grade. A negative outlook, however, indicated a rating downgrade is more likely over the next one to two years.
'The affirmation reflects our belief that, with completion of the proposed recapitalization, there will be a significant boost to Citi's capital adequacy,' S&P said in a statement.
However, if 'contrary to our current expectations, Citi's turnaround strategies (which entail significant execution risk) are unsuccessful, debtholders could eventually be required to participate in further government-led restructuring actions,' S&P said.
Both agencies also slashed their ratings on some of Citigroup's preferred shares to deep into junk territory, citing the suspension of dividends on the securities, which will pressure holders to exchange the stock at less than its par value.
Moody's cut Citigroup's preferred stock to a deeply speculative grade of 'Ca,' 10 steps below investment grade, from 'Baa3,' the lowest investment grade. S&P cut the shares to 'C,' a step above default, from 'BB.'
(Reporting by Karen Brettell; Editing by Jonathan Oatis) Keywords: CITIGROUP RATING/MOODYS (karen.brettell@thomsonreuters.com; +1 646 223 6274; Reuters Messaging: karen.brettell.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.