Today Citigroup lowered its rating on Wal-Mart from a buy to a hold because of the Employee Free Choice Act, "citing concern that legislation intended to make it easier for employees to unionize would raise the retail giant’s labor costs and hurt its competitiveness."
This is startling for a lot of reasons, not the least of which is that they’re downgrading the stock based on an assumption that a piece of legislation will pass that hasn’t even been introduced yet.
The Citigroup analyst, Debora Weinswig, said Employee Free Choice (EFCA) "could be a significant drag to earnings."
It’s hard to view this as anything other than a reckless and overt political act on the part of a company, Citigroup, that has made stupendously bad business decisions with dire economic consequences necessitating billions in taxpayer bailouts, at a time when the market can ill-afford it.
Even Bank of America admitted in an internal memo that increased wages for working people would mean "increased spending power of lower income consumers," which would mean that even if Wal-Mart was successfully unionized — a big if — they could make up the cost of higher wages with an increase in sales. Somehow that calculation didn’t enter into Ms. Weinswig’s extraordinarily premature analysis.
Blanche Lincoln has been one of the wobbly Senate votes on Employee Free Choice, and she’s pretty much a wholly owned subsidiary of Wal-mart. One has to wonder if this isn’t an overt attempt to influence her vote.
I asked Pulitzer-Prize winning former New York Times reporter David Cay Johnston, author of author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense [and Stick You with the Bill], what he made of this announcement:
Citigroup’s comment fit with the same pattern we see in utility regulation. Just as state regulators are about to vote on raising electricity and gas rates, the bond ratings agencies come out with warnings that they’re thinking about downgrading the bonds. None dare call it "interference in the market."
If there is any company that could absorb this kind of hit in order to tank a piece of legislation that it has been mobilizing against for months, it’s Wal-Mart.
Taxpayers now own a huge chunk of Citigroup. We should be looking a lot more closely about how, and when, these ratings get made.
Update: Greg Sargent says that Burger King is getting in on the action, too.
David Cay Johnston will be joining us at 3:30 EDT on Thursday as part of our week-long series "No More Dough ‘Til We Know Where It Goes." You can send a note to Congress telling them what you think about the need for more bank bailout transparency here.