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Global Credit Research - 26 Jan 2011
New York, January 26, 2011 -- Moody's Investors Service upgraded the unsupported bank financial
strength rating (BFSR) of Citibank (South Dakota), N.A.
(CBSD) to D+ from D and changed the outlook for the BFSR to stable
from negative. CBSD's D+ BFSR maps into an unsupported
baseline credit assessment (BCA) of Ba1. At the same time,
the rating agency also changed to stable from negative the outlooks for
the unsupported ratings of FIA Card Services, N.A.
(FIA) (BFSR of D+, BCA of Ba1), a subsidiary of Bank
of America Corporation, and Chase Bank (USA), N.A.
(BFSR of C-, BCA of Baa1), a subsidiary of JPMorgan
Chase & Co.
The deposit ratings for all three banks, which incorporate systemic
support, were affirmed with negative outlooks. CBSD is rated
A1 for deposits, FIA is rated Aa3 for deposits and Chase Bank USA
is rated Aa1 for deposits. The negative outlook on these supported
ratings is prompted by the passing of the Dodd-Frank Act,
which, over time, could result in lowering our systemic support
assumptions on systemically important U.S. financial institutions
including Citigroup, Bank of America, and JPMorgan Chase &
Co and their banking subsidiaries.
The rating action reflects improvement in asset quality, which has
not only improved the banks' earnings through lower credit costs
but also increased Moody's comfort level about the banks'
capital adequacy. The improved financial performance also supports
their franchise positioning as the three largest issuers of general purpose
credit card issuers in the US. The improvement in asset quality
at all three banks has been driven by the elimination of lower credit
quality accounts through chargeoffs, the origination of new accounts
with higher quality borrowers, and the stabilization in US unemployment
rates, albeit at high levels.
Profitability has benefited from loan loss reserve releases (provisions
less than net charge-offs) reflecting the steady downward trend
of delinquencies; however, given the significant improvement
in charge-offs, all three banks would now be posting positive
earnings even if reserve releases were excluded. These positive
trends, which have offset the drag of declining balances and revenue
pressure emanating from the CARD Act, tightened lending standards,
and consumer deleveraging, are expected to continue in 2011.
Finally, the rating action reflects the banks' satisfactory
capital positions, which should provide adequate cushion even in
a worse-than-expected economic environment, and satisfactory
The BFSR and BCA of FIA and CBSD are lower than those of Chase Bank USA,
largely reflecting the fact that both FIA and CBSD have weaker franchises,
asset quality, and profitability. FIA, along with Bank
of America, is in the process of refining its credit card strategy
in the post-CARD Act environment to focus on lower risk customers
and expansion of existing customer relationships, including those
existing through BofA's large retail branch network, while
de-emphasizing lower quality balance transfer-related business.
Moody's believes there is some uncertainty regarding the company's
ability to execute this transition successfully. In its core Citi-Branded
general purpose card business, CBSD's market share of US credit
card outstandings has declined in recent years relative to peers.
Moreover, there is uncertainty regarding the future direction and
composition of the CBSD enterprise, as the Retail Partner Card business,
which makes up approximately 37% of total card receivables,
has been targeted for divestiture.
The maintenance of Chase Bank USA's BFSR at C-/BCA Baa1 reflects
the bank's strong franchise and improving profitability, but
also the monoline nature of the bank. Vulnerabilities stemming
from single asset class concentration, including earnings volatility
driven by macroeconomic factors as well as political and regulatory developments
such as the CARD Act, likely limits the rating of such entities
in the unsupported BCA range of Baa.
The last rating action for FIA and CBSD was on July 27, 2010 when
the outlooks on the banks' deposit and senior debt ratings were
changed to negative from stable. The last rating action for Chase
Bank USA was March 4, 2009 when the outlook on the bank's
deposit and senior debt ratings was changed to negative from stable.
The principal methodology used in this rating was Analyzing The Credit
Risks Of Finance Companies published in October 2000.
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades bank financial strength rating for Citibank (South Dakota), outlooks for Chase Bank (USA) and FIA Card Services moved to stable
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