Moody's Investors Service warned that Citigroup Inc.'s credit-card business will likely need further capital injections from its parent company because of large losses.
Additionally, Moody's expects earnings for the operations, and the U.S. credit-card industry as a whole, will be further adversely affected by pressure on revenue in the wake of regulatory changes that were signed into law on Friday by President Barack Obama.
Those changes are set to clamp down on the sector's ability to boost interest rates and levy higher fees on consumers. The bill also places restrictions on marketing cards to college students and teenagers.
Citi and other financial companies that issue credit cards have been plagued by losses as consumers have defaulted on their payments amid the prolonged recession. Moody's said Tuesday that Citi's credit-card losses are comparatively high, and with anticipation of high unemployment throughout 2009 and 2010, the credit agency expects loss rates to continue to rise and remain at elevated levels.
Despite the unit's recent portfolio re-pricing actions, expense reductions and capital infusions, losses are forecast for this year and potentially 2010, Moody's warned.
On those concerns, Moody's lowered its bank financial strength rating on the credit-card operations to D from C-. Still, Moody's said the business benefits from support from its parent.
Shares of Citigroup were up 2.5% to $3.76 in recent trading amid a broad rise in the market.