Moody's Investors Service cut its ratings on Citigroup Inc debt by a notch, the latest embarrassment for the largest U.S. bank, and putting it under renewed pressure to shore up its shrinking capital base.
While stocks fell in Asia as investors saw the move as a sign that the global credit crisis could be worsening, banking shares rose or were stable in Europe and Citigroup's bonds were unchanged.
Moody's lowered Citigroup's rating to "Aa3," saying it doubted that the U.S. bank could rebuild its capital ratios any time soon, and said Citi's failure to restore its capital ratios in the medium term could lead to a further downgrade.
Moody's analyst Sean Jones said weak earnings at Citigroup would prevent it from restoring capital ratios quickly even after it raised $7.5 billion from the Gulf emirate of Abu Dhabi in November.
The agency suggested ways to rebuild included raising more outside capital and reducing its dividend. A growing number of analysts see Citi as likely to reduce its dividend, which costs the bank about $2.7 billion a quarter.
The downgrade came as Citigroup said it planned to rescue $49 billion of structured investment vehicles (SIV) in a move that further strains the firm's capital levels and may mean a U.S. government-endorsed "Super-SIV" bailout plan is no longer needed.
SIVS are off-balance-sheet vehicles set up by banks to invest in mortgage-backed securities whose value has been slashed by a collapse in U.S. subprime mortgages, which were loans made to people with poor or non-existent credit histories.