Standard & Poor’s revised its outlook to negative from stable on the issuer credit ratings on RBS Citizens Financial and its main bank subsidiaries RBS Citizens and Citizens Bank of Pennsylvania.

At the same time, S&P affirmed the A-/A-2 issuer credit rating on Citizens and the A/A-1 issuer credit ratings on Citizens’ bank subsidiaries. The stand-alone credit profile remains a.

The outlook revision mirrors the outlook change on Citizens’ parent, The Royal Bank of Scotland PLC (RBS). “The negative outlook on RBS stems from our view that industry risks for U.K. banks have grown, relative to other banking systems,” said Standard & Poor’s credit analyst Barbara Duberstein.

The ratings on Citizens’ bank subsidiaries are currently the same as those on RBS, and, at this time, S&P said it would probably not rate Citizens higher than its parent under our group rating methodology. Therefore, S&P said could downgrade Citizens in the event that we lowered our ratings on RBS.

“The negative outlook mirrors the outlook on RBS,” said Duberstein.
“Otherwise, we consider that Citizens’ stand-alone fundamentals are stable.”

S&P expects that earnings will continue to improve through 2013, mainly because of a further decline in loan losses. S&P said it also anticipates that Citizens will maintain capital ratios that are higher than those of its peers. Specifically, S&P expects the company will maintain its risk-adjusted capital ratio, based on our measurement, in excess of 10%, despite potential moderate payouts of capital to RBS.

S&P said if, however, the company’s asset quality shows signs of worsening or if its earnings do not continue to improve, it could lower the ratings. It could also lower the ratings if the company’s capital payout to RBS is higher than S&P expect, causing capital ratios to decline significantly.

If S&P downgraded Citizens, it would lower its short-term ratings on the bank subsidiaries to A-2 from A-1. However, S&P’s short-term ratings on the holding company would remain at A-2.