Moody's Investors Service, a rating arm of Moody's Corporation (MCO - Free Report) , has upgraded the long-term ratings of Citigroup (C - Free Report) and its subsidiaries, including the principal bank subsidiary, Citigroup, N.A., as a result of the review commenced on Nov 29, 2018. Further, the rating agency affirmed all short-term ratings. Also, the ratings outlook is stable.
Rating for Citigroup’s senior debt has been raised to A3 from Baa1. Also, its subsidiary’s deposits have been upgraded to Aa3 from A1 and the baseline credit assessment (BCA) of its bank subsidiary to baa1 from baa2.
What Supports the Upgrade?
The ratings agency feels that Citigroup’s efforts to simplify its operations and reduce global consumer footprint along with attempts to enhance safety and soundness called for BCA rating upgrade. Moreover, the company’s strong economies of scale in global cards and institutional businesses is a key positive. Also, Moody's expects Citigroup to keep generating steady earnings that can be used toward investment in technology.
Moody’s finds Citigroup’s strategy of targeting affluent and emerging affluent consumers in different countries impressive. Alongside, the firm has refocused credit card lending business to a relatively lower risk appetite compared to the pre-crisis period along with adoption of digital platforms to serve customers, which gives it an edge over its peers.
Citigroup is considered a leader in transaction and securities services since its institutional strategy centers deliver services through a vast global network of 98 countries and the world's major trade corridors. Combining these operating services with Citigroup's extensive market making capabilities leads to a robust stream of transaction and related trading revenues from global corporates, as well as a growing stock of core institutional LCR-friendly deposits.
Per the ratings agency, Citigroup has significantly improved its risk management capabilities, risk appetite and corporate governance since the financial crisis. Therefore, Moody's finds it less likely that Citigroup will materially increase market, credit or operational risks or deviate from its client driven strategy. This strategy (when combined with capital returns) has the potential to further strengthen returns for the company’s shareholders.
What Could Lead to Ratings Change?
BCA rating can be upgraded further if Citigroup is able to deepen relationships with existing retail customers and increase market share, while maintaining current risk level, resulting in a stronger and more diversified consumer banking franchise in the United States.
On the flip side, Citigroup's ratings may be downgraded if it experiences a significant deterioration in its capital or liquidity levels. Also, if a marked increase in its risk appetite, or weakness in operations control is witnessed, the ratings agency might consider this to be a negative factor.
Shares of Citigroup have lost 8.5% in the past six months.
Currently, Citigroup carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
M&T Bank Corporation (MTB - Free Report) has witnessed nearly 3.6% upward estimate revisions for the current year over the past 60 days. Moreover, this Zacks #2 Ranked (Buy) stock has rallied more than 2% in the past three months.
First Business Financial Services (FBIZ - Free Report) has witnessed slight upward estimate revisions for the current year over the past 30 days. Further, the company’s shares have gained more than 6% over the past three months. At present, it holds a Zacks Rank of 2.
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