December 22, 2008
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News: Moody's Sets Mood on Citi.
More bad news, as the country brings down Citi. Worsening economic conditions are still plaguing Citigroup's credit card division for the US (called ‘Citibank'), after a successful rally on Wall Street because of recent positive moves. Even though the credit card giant has cited many right moves recently, the national economy continues to plummet. Until some of the dust settles, the liquidity benefit that Citibank offers will continued to be undervalued. As such, the Moody's Investors Service agency have just lowered the card lenders ‘strength rating' from a ‘B' to a ‘C-‘ due to the volatile relationship of credit card default and unemployment.
Long-term forecasts aren't any better – the Moody's agency also dropped the bank's long-term ratings from "Aa1 to "Aa3". Having already suffered an 88% drop in stock value from October to November ($25 to $3) they appeared to be on the rise again after a government initiative to preserve national liquidity through credit cards. They had nicely reached the $8 mark when the analysts reminded us that credit card default is linked to unemployment and that unemployment remains in a dive for the foreseeable. Citi's stocks dropped quickly into the $6 range as the market opened today. Citi's short-term looks good, however, with a "Prime-1" affirmation.
Again, tied to the US economy, Citibank is at the tether of the job market. As unemployment rises here, charge-offs also increase (almost directly) for Citibank because it is confined within the US. ‘Charge-offs' here, refer to credit card defaults that are deemed to be uncollectible. Moody's and the other analysts are emphasizing the fact that these charge-offs will continue to rise well into 2009.
At this point, no one wants to venture speculation of speculation. Securitization has played a major roll in the credit card industry for some time now. Significant revenues have been enjoyed by Citibank and the rest of the industry through securitization until two quarters ago, when the sub-prime bubble burst.
Very recently, the Fed has stepped in to revitalize this market but, as of yet, analysts prefer to not speculate with comment. ‘Securitization' is the packaging of debt (in this case credit card debt) and selling these packages to secondary speculation markets.