(The following statement was released by the rating agency)
Oct 10 - Fitch Ratings has affirmed the ratings of Citigroup Inc.
(Citi), including the company's 'A/F1' Issuer Default Ratings (IDRs) and'a-'Viability Rating (VR). The Rating Outlook is Stable. A complete list ofratings follows at the end of this release.
Today's rating action on Citi was taken in conjunction with Fitch's GlobalTrading and Universal Bank (GTUB) periodic review. Fitch's outlook for theindustry is stable on balance. The positive rating drivers include improvedliquidity, funding, capitalization and more streamlined businesses, all partlydriven by regulation. Offsetting these positive drivers are substantial earningspressure, regulatory uncertainty and heightened legal and operational risk.
RATING ACTION AND RATIONALECiti's 'a-' VR continues to reflect both Citi's fundamental strengths andremaining challenges. Citi's strengths include its diverse revenue mix,conservative liquidity management and improved capital position. Challengesinclude a still sizeable level of non-performing loans and non-core assets, aswell as modest levels of profitability as measured by core return on assets.
Non-core assets totaled $191 billion at June 30, 2012 or approximately 10% ofassets, down considerably from 34% of assets in early 2009. However, thenon-core assets housed in Citi Holdings continue to be a drag on overallprofitability, as well as asset quality ratios. Citi Holdings loans comprise 20%of total Citigroup loans, but over 60% of nonaccrual assets. That said, reservecoverage of the Citi Holdings loan portfolio remains appropriate at 9.6% atquarter-end. The ratings incorporate an expectation of a slowing runoff to theremaining assets in Citi Holdings, now comprised primarily of loans in NorthAmerica.
The current VR factors in Fitch core capital levels at or above the currentlevels, and continued progress in meeting Basel III capital ratios (includingthe proposed SIFI buffer). Fitch views strong capitalization as necessary givenremaining balances of non-core assets and non-performing loans. The current VRalso reflects the continued generation of operating profitability and a gradualreduction of remaining non-core assets managed by Citi Holdings.
Regulatory and legal issues appear relatively manageable, but Citi and its peersface financial challenges due to consumer banking regulatory changes in theU.S., new capital markets regulations such as the Volcker Rule andimplementation of Basel III capital and liquidity standards. Fitch believes Citiwill be able to comfortably meet new regulatory requirements, but recognizesthat new regulations could affect revenue generation capacity particularly incapital markets activities and U.S. consumer operations. Citi's diverseinternational franchise enhances its financial resiliency.
RATING DRIVERS AND SENSITIVITIES - VR, IDRS & SENIOR DEBTThe VR could be positively affected if Citigroup significantly improvesoperating performance as measured by operating return on assets (ROA). Thisimprovement could be achieved if performance of core operations is maintained,while the drag on performance from non-core operating diminishes over time.Reductions in current economic, financial, and regulatory uncertainties would becontributing factors to any upward momentum in the VR. Other positive driversinclude sizeable reductions in remaining non-core assets and non-performing loanlevels, while maintaining conservative liquidity and capitalization. Fitch viewsupward momentum in ratings as limited over the near term though given thevarious headwinds facing Citi and the industry.
Downward pressure on the VR would result from a material loss, reduction incapital ratios or significant deterioration in liquidity levels. Likewise, anyunforeseen outsized fines, settlements or other charges could also have adverserating implications. Fitch considered Morgan Stanley's purchase of an additional14% of the Morgan Stanley Smith Barney from Citi to be a modest net positive forCiti. The transaction resulted in a moderately higher accounting charge in 3Q'12results than Fitch expectations, but remained a rating neutral event.
RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOORCiti's current 'A' Long-term IDR is above its 'a-' VR, reflecting the fact thatCiti's IDR benefits from support. The '1' Support Rating, and 'A' Support RatingFloor for Citi, factors in government support in the event of need for Citi andother U.S. G-SIFIs. At Citi's current VR, the firm's Long-term IDR would beaffected by a change in the support rating floor.
Fitch's rating action continues to embody a view of support in Citi's IDRs andother U.S. Global Systemically Important Financial Institutions (G-SIFIs) overthe near-to-intermediate term. This viewpoint was broadly discussed in Fitch'sspecial report titled 'U.S. Banks - Sovereign Support: When Does it End' datedDec. 15, 2011. Fitch could reassess its support ratings for U.S. G-SIFIs ifglobal market conditions normalize and resolution regimes become more harmonizedacross international jurisdictions.
While Fitch believes the policy goal is to no longer provide full support tosystemically important banks, this is progressing at an uneven pace globally.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIESSubordinated debt and other hybrid securities issued by Citi and by variousissuing vehicles are all notched down from Citi's or its bank subsidiaries' VRin accordance with Fitch's assessment of each instrument's respectivenonperformance and relative loss severity risk profiles. Their ratings are allprimarily sensitive to any changes in the VRs of Citi or its subsidiaries.
HOLDING COMPANY RATING DRIVERS AND SENSIVITIESCiti's IDR and VR are equalized with those of its operating companies and banksreflecting its role as the bank holding company, which is mandated in the U.S.to act as a source of strength for its bank subsidiaries. It has modest doubleleverage of 108% at 2Q12.
SUBSIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIESThe IDRs of Citi's major rated operating subsidiaries are equalized with Citi'sIDR reflecting Fitch's view that these entities are core to Citi's businessstrategy and financial profile.
Citigroup is one of the leading banking institutions in the world with by farthe largest international banking franchise among U.S. peers. Early in 2009, astrategic shift was announced which split Citi into two major operating units:Citicorp to manage core operations (regional consumer banking and theinstitutional clients group), and Citi Holdings to manage and dispose ofnon-core assets.
Fitch affirms the following ratings:
Citigroup Inc.--Long-term Issuer Default Rating (IDR) at 'A' with a Stable Outlook;--Senior unsecured at 'A';--Subordinated at 'BBB+';--Preferred at 'BB';--Short-term IDR at 'F1';--Support at '1';--Support floor at 'A';--Viability Rating at 'a-'.Citibank, N.A.--Long-term IDR at 'A' with a Stable Outlook;--Long term deposits at 'A+';--Short-term IDR at 'F1';--Short-term deposits at 'F1';--Support at '1';--Support Floor at 'A';--Viability Rating at 'a-';--Long-term FDIC guaranteed debt at 'AAA'.Citibank Banamex USA--Long-term IDR at 'A';--Subordinated at 'BBB+';--Long-term deposits at 'A+';--Short-term IDR at 'F1';--Short-term deposits at 'F1';--Viability Rating at 'a-';--Support at '1';--Support Floor at 'A'.Citigroup Funding Inc.--Long-term IDR at 'A';--Senior unsecured at 'A';--Short-term IDR at 'F1';--Short-term debt at 'F1';--Market linked securities at 'A emr';--Long-term FDIC guaranteed debt at 'AAA'.Citigroup Global Markets Holdings Inc.--Long-term IDR at 'A';--Senior unsecured at 'A';--Short-term IDR at 'F1';--Short-term debt at 'F1'.Citigroup Global Markets, Inc.--Senior Secured at 'A';--Short-term debt at 'F1'.Citigroup Derivatives Services LLC.--Long-term IDR at 'A';--Short-term IDR at 'F1';--Support at '1'.Citibank Canada--Long-term IDR at 'A';--Long-term deposits at 'A'.Citibank Japan Ltd.--Long-term IDR at 'A';--Short-term IDR at 'F1';--Long-term IDR (local currency) at 'A';--Short-term IDR (local currency) at 'F1';--Support at '1'.CitiFinancial Europe plc--Long-term IDR at 'A';--Senior unsecured at 'A';--Senior shelf at 'A';--Subordinated at 'BBB+'.Citibank International PLC--Long-term IDR at 'A';--Short-term IDR at 'F1';--Support affirmed at '1'.Commercial Credit Company--Senior unsecured at 'A'.Associates Corporation of North America--Senior unsecured at 'A'.Egg Banking plc--Subordinated at 'BBB+'.
Citigroup Capital III, VII, VIII, IX, X, XIII, XIV, XV, XVI, XVII, XVIII,and XX--Trust preferred at 'BB+'.
Adam Capital Trust III, Adam Statutory Trust III, IV, V--Trust preferred at 'BB+'.
Additional information is available at '
'. The ratings abovewere solicited by, or on behalf of, the issuer, and therefore, Fitch has beencompensated for the provision of the ratings.
Applicable Criteria and Related Research:--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);--'Securities Firms Criteria' (Aug. 16, 2011);--'Bank Holding Company Criteria' (Aug. 16, 2011);--'Rating Bank Regulatory Capital and Similar Securities' (Dec. 15, 2012);--'U.S. Banks - Sovereign Support: When Does it End' (Dec. 15, 2011).Applicable Criteria and Related Research:Rating Bank Regulatory Capital and Similar SecuritiesU.S. Banks - Sovereign Support: When Does it End -- AmendedSecurities Firms CriteriaBank Holding CompaniesGlobal Financial Institutions Rating Criteria(New York Ratings Team)