NEW YORK ( TheStreet) -- Citigroup (C)'s agreement to accept a lower valuation for its 49% stake in Morgan Stanley (MS)Smith Barney is a "credit negative" for the bank, according to a report published Monday by Moody's Investors Service.
On Tuesday, Citigroup and Morgan Stanley settled a dispute over the valuation of the wealth management unit, in which Morgan Stanley owns the remaining 51% stake. The newly agreed-upon price resulted in Citigroup's stake being written down to $6.6 billion, some 40% less than where Citigroup had been valuing it. The result will be a $4.7 billion charge to Citigroup's third quarter earnings.
"The charge is credit negative and threatens Citigroup with a breakeven, or worse, quarter," writes Moody's analyst Sean Jones.
Jones noted, however, that the write-down "will have a minimal effect on Citigroup's regulatory capital ratios." He points to Citigroup's estimate that a closely-watched "Tier I" capital ratio under new rules known as Basel III ended the second quarter at 7.9%, "similar to that of most of its US peers."Citigroup's bonds and common shares have both increased in price since Tuesday's agreement. Citigroup shares were up more than 8% over the past week shortly before noon on Monday, while yields on its 10-year bonds have fallen slightly even while yields on comparable 10-year Treasury bonds have climbed. -- Written by Dan Freed in New York. Follow this writer on Twitter.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV