Moody's Investors Service on Monday boosted its outlook on Citigroup Inc.'s stand-alone bank financial strength rating to "Stable" from "Negative," based on the company's strengthened capital position and improved risk profile.
The change reflects the bank's progress in improving its cash reserves, which provide a greater buffer against the losses Moody's expects and in the event a more severe situation arose, the ratings agency said. "These losses would principally result from exposures in Citigroup's residential mortgage portfolio, credit cards, and to a lesser extent, structured residential mortgage securities," Moody's said.
"Citigroup has both increased the amount of capital it holds and reduced its exposure to some of its most troubled assets — notably through the sale of its inventory in structured residential mortgage securities at better-than-expected prices," said Moody's Senior Vice President Sean Jones. The bank's earnings for the first half of the year were also better than expected, he said.
Citigroup's steps to reduce its risk profile also put it in a better position to handle negative economic developments, such as another contraction in economic growth. The outlook reflects that a downgrade in the event of severe economic stress is unlikely, though not impossible, Moody's said.
Citigroup's senior long-term and short-term ratings are "A3" and "Prime-1," respectively. The outlook on these ratings remains stable.
In afternoon trading, Citigroup shares added 10 cents, or 2.6 percent, to $4.
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