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

Advisor moves: Raymond James lands $1.25B team as Merrill loses two
Advisor moves: Raymond James lands $1.25B team as Merrill loses two

Iowa's Greenwood Wealth Partners exits D.M. Kelly as UBS and Ameriprise win Merrill Lynch recruits in California and Florida

Never a losing day: CFTC alleges $950 million forex Ponzi scheme
Never a losing day: CFTC alleges $950 million forex Ponzi scheme

Less than 1% of pool funds went to actual trading, CFTC says

Fintech bytes: Northwestern Mutual picks Jump for enterprise AI
Fintech bytes: Northwestern Mutual picks Jump for enterprise AI

Plus, SEIA builds a governed data foundation for its in-house AI and Snappy Kraken debuts a read-only marketing coworker for advisors.

People moves: AllianceBernstein names Onur Erzan as next CEO
People moves: AllianceBernstein names Onur Erzan as next CEO

Broadridge, Wedbush and Alaris Acquisitions have also filled senior wealth management roles with hires from J.P. Morgan, Osaic and SageView.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains