Citigroup and related ratings taken off creditwatch and affirmed; outlook negative at S&P

Jun.02, 2008 in Market Outlook

S&P affirmed its ‘AA-/A-1+’ credit rating on Citigroup Inc. and its ratings on Citigroup’s units. Standard & Poor’s also said that it removed all these ratings from CreditWatch, where they were placed on April 15, 2008, with negative implications. The outlook on all these companies is negative. “Despite the challenges facing Citigroup over the next two years because of deteriorating consumer credit, its fundamental earnings power is unimpaired.”

S&P revised its outlook on Bank of America and units to negative from stable. S&P also said that it affirmed its ‘AA/A-1+’ credit rating on Bank of America and its ratings on Bank of America’s units. “The rating action reflects our concern regarding the weak U.S. economy and its impact on consumer lending.”

As mentioned at 12:36, S&P revised its outlook on JPMorgan Chase and its affiliates to negative from stable. S&P also said that it affirmed its ‘AA-/A-1+’ counterparty credit rating on JPM and its ratings on related entities. “We took this action within the context of a broader sector review. It reflects our concern regarding the weak U.S. economy and its impact on consumer lending.” JPM’s exposure to delinquent or nonperforming consumer credit assets could depress returns over the next several quarters. JPM has fared better than peers in the current period of market dislocations, as it was not a major player in the collateralized debt obligation market. In addition, in the syndicated lending arena, where it is the largest player, it had exercised discipline in avoiding a buildup in inventory. Nevertheless, its very large positions in consumer lending–mortgages and credit cards–will likely lead to loan losses in excess of historical norms and additions to reserves.

As mentioned at 12:34, S&P lowered its long-term rating on Lehman Brothers Holdings to ‘A’ from ‘A+’, and affirmed ‘A-1′ short-term rating. The outlook is negative. The rating action is in conjunction with review of the global securities industry. The downgrade primarily reflects concern that the pace and extent of earnings improvement could be considerably more muted than previously assumed. Lehman’s earnings performance in recent quarters has held up relatively well under current market conditions despite write-downs on troubled assets. However, with a first-quarter end in February, the effects of a particularly difficult operating environment in March will only be reflected in Lehman’s second-quarter performance. Consequently, S&P expects a relatively meaningful deterioration in Lehman’s second-quarter performance owing to a generally slower business environment, additional write-downs on certain troubled exposures, and the negative effects of hedges due to basis risk and de-levering of the balance sheet.

S&P placed its ‘AA-/A-1+’ counterparty credit rating on Wachovia and its counterparty credit ratings on Wachovia’s rated subsidiaries on CreditWatch Negative. At the same time, S&P affirmed ‘A-1+’ short-term counterparty credit rating on Wachovia Bank N.A. “We took this action due to today’s announcement that Wachovia’s CEO, Ken Thompson, is retiring at the request of the board of directors. Until further clarification can be received regarding the abrupt departure of the CEO and whether there is a substantive change in Wachovia’s core businesses’ operating projections, the ratings will remain on CreditWatch Negative.”

Did you like this? If so, please bookmark it,