Bloomberg reports that Moody’s two-grade cut of Citigroup’s ratings was unwarranted, arbitrary and failed to recognize the lender’s financial strength, the New York-based bank said in a statement. Investors shouldn’t rely on 'opaque' credit ratings, it said.
'Moody’s approach is backward-looking and fails to recognize Citi’s transformation over the past several years', said the bank, created in 1998 through the merger of Citicorp and Travelers Group Inc. 'Citi believes that investors and clients have become much more sophisticated in their credit analysis over the past few years, and that few rely on ratings alone -- particularly from a single agency -- to make their credit decisions'.
Citigroup, Morgan Stanley, Bank of America and Royal Bank of Scotland are among banks reacting to the downgrades, which could boost the firms’ borrowing costs and force them to post more collateral to trading partners when dealing in derivatives, a type of financial instrument. Moody’s said the four firms, which took taxpayer-funded bailouts, have a history of 'high volatility' and problems with risk management.
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