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News Link • Economy - Economics USA

B of A and Citigroup: The Mother of All Negative Credit Watches

The rating service, Fitch, has just put most of the U.S banking sector on credit watch, with negative implications. The move is made as the result of the belief by Fitch that the banking system may lose government support for different grades of its debt, based on a new proposed rule by the FDIC,that comes about because of the Dodd-Frank Act. Below is the statement issued by Fitch: Today, Fitch Ratings issued a number of separate press releases placing on Rating Watch Negative most U.S. bank and bank holding companies’ Support Ratings, Support Floors and other ratings that are sovereign-support dependent. The two companies mostly impacted by this announcement are Bank of America Corporation and Citigroup, Inc. This is due to the fact that both entities’, and their related subsidiaries’, Issuer Default Ratings (IDRs) and their respective senior debt obligations have benefited from support provided by the U.S. government. At the present time, Fitch’s long-term ‘A+’ IDR ratings for Citigroup and Bank of America incorporate a three-notch uplift for the long-term rating and a two-notch uplift for the ‘F1+’ short-term ratings. If Fitch determines on a go forward basis that support from the sovereign state can no longer be relied upon it is not certain that Fitch would immediately lower the IDRs of Bank of America or Citigroup to their unsupported rating levels. Over the near to intermediate term, Fitch’s fundamental credit assessment of Bank of America and Citigroup will continue to consider existing support already received, such as debt still outstanding issued under the Federal Deposit Insurance Corp. (FDIC’s) Temporary Liquidity Guaranty Program (TLGP), in its ratings of those institutions. As a result, the IDRs will continue to incorporate support received during the crisis, as well as improvements in intrinsic financial profiles and expectations for continued improvement.

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