S&P goes negative on Bank of America, Citigroup

Standard & Poor's cut its credit outlook for Citigroup and Bank of America to “negative” from “stable,” warning that shifts in the political winds don't bode well for some investors in these large institutions.
FEB 07, 2010
Standard & Poor's cut its credit outlook for Citigroup and Bank of America to “negative” from “stable,” warning that shifts in the political winds don't bode well for some investors in these large institutions. Specifically, S&P said that if additional government rescues are necessary, owners of bonds in these two banks would likely be required to absorb losses. Bond holders were spared any pain when the government twice bailed out Citi and BofA, but shareholders were nearly wiped out as the banks' stock prices sank into the single-digits. Bond investors may not be so lucky the third time around, S&P advised, citing language in a bill approved by the House of Representatives in December that requires bond holders take losses when a sick financial institution is wound down. S&P also said that the Obama administration's proposed tax on banks based on the size of their liabilities “further underscores the extent to which the political climate” has changed. If the tax were approved by Congress, Citi would have to ante up an additional $2.1 billion annually, according to Moody's, and BofA would be on the hook for $1.7 billion, which is equal to 21% of last year's pretax income. S&P added that its credit ratings for Citi and BofA, currently at A, are enhanced by three notches thanks to the potential for “additional extraordinary government support.” That means without taxpayer backing the banks would be rated BBB, which is two notches above junk. Mr. Elstein is a reporter at Crain's New York Business, a sister publication to InvestmentNews.

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.