S&P Revises Credit Outlooks On BofA (BAC) and Citi (C) to Negative, Saying No More Free Govenment Handouts
S&P lowered its rating outlook on Bank of America (NYSE: BAC) and Citigroup (NYSE: C) today from Stable to Negative, citing uncertainty about the U.S. government's willingness to provide additional extraordinary support in a way that will benefit debt holders.
Analyst John Bartko stated, "We believe markets are beginning to stabilize and the U.S. government is seeking ways to reduce the potential for moral hazard and systemic risk associated with large financial institutions."
Bartko notes that one such effort to reduce these risks is evident in the House bill (H.R. 4173) passed in mid-December that would specifically preclude the government from company-specific bailouts, and would allow it to use public funds to assist in winding down an ailing financial institution, but only if that entity's debt holders incurred losses.
The proposed Financial Crisis Responsibility Fee further underscores the extent to which the political climate affects bondholders of these companies adversely, Bartko explains.
On Bank of America, S&P affirmed all ratings, including its 'A/A-1' counterparty credit rating and ratings on all related entities.
On Citigroup, S&P affirmed its counterparty credit and debt ratings on Citi (A/A-1). The firm raised the ratings on its hybrid capital issues to 'BB-' from 'B+', excluding its preferred stock, which was affirmed at 'C'.
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