S&P Ratings cuts outlook on Citigroup

NEW YORK (AP) – Standard & Poor’s Ratings Services on Tuesday cut its outlook on Citigroup Inc. to "negative" from "stable," saying the U.S. government appears increasingly likely to leave bond holders hanging in case of another bailout of financial companies.

The negative outlook signals the possibility of a future downgrade.

However, S&P affirmed Citigroup’s investment-grade counterparty credit and debt ratings, and said the bank’s position as a stand-alone company has improved. S&P’s counterparty credit and debt ratings on Citigroup now stand at A and A-1 respectively.

S&P defines an A rating as one given to a company that has a "strong capacity" to meet its debt payments over time but it is more vulnerable to an economic downturn or a change in circumstances than companies that have the higher ratings of AAA or AA.

S&P credit analyst Scott Sprinzen said the outlook revision "reflects our increased uncertainty about the U.S. government’s willingness to provide additional extraordinary support to highly systemically important financial institutions in a way that will benefit debt holders."

S&P said sentiment in Congress regarding any future bailouts is changing, with a goal of reducing taxpayer exposure. The ratings agency cited a recently passed House bill that would preclude the government from making company-specific bailouts, and would allow it to use public funds to assist in winding down an ailing financial institution only if its debt holders incurred losses.

Citigroup was the hardest hit of the big U.S. banks during the credit crisis that peaked in late 2008 and early 2009, and received $45 billion in government bailout money. It raised $20 billion in December to help repay the money it received as part of the Troubled Asset Relief Program. The remaining $25 billion was converted to stock last fall.

S&P on Tuesday cited Citigroup’s improvement as a stand-alone company in raising ratings on Citigroup’s hybrid capital issues to BB- – three steps below investment-grade – from B+, excluding its preferred stock, which S&P affirmed at C.

Shares of Citigroup rose 3 cents to $3.18, near the middle of the stock’s 52 week range of 97 cents to $5.43.