Standard & Poor’s announced Tuesday that it lowered the ratings outlook on Bank of America (NYSE: BAC) and Citigroup (NYSE: C) to negative. The ratings agency cited uncertainty over the government’s willingness to supply support banks creditors in the future if needed.
Assigning a negative outlook generally means a ratings downgrade is in the cards over the next couple years. However, S&P did confirm both banks counterparty credit and debt ratings at A/A-1.
According to S&P, both bank’s ratings are currently enhanced a few notches reflecting the potential of additional government support. However, that view is changing as S&P had previously said it believes government support would be temporary.
To further illustrate this view, H.R. 4173, a U.S. House bill that is working its way through congress, would prevent the government from participating in company specific bailout programs. According to the bill, the government could act as a party helping to wind down a failing bank, so long as debt holders still realize their losses.
The S&P also said it has raised the rating on Citigroup’s hybrid capital to BB-minus from B-plus. The move was pushed by Citigroup’s improvement of its stand alone credit and capital position.
The ratings agency also expressed concern that credit losses at Bank of America may remain high the remainder of 2010 as it is not convinced there will be a turn in the U.S. banking cycle.
Bank of America reported total net charge-offs of $8.42 billion in the fourth quarter of 2009, up from $5.54 billion in the same period a year earlier.
