Correction to text Dec. 18, 2008 Release: Moody's downgrades Citigroup senior debt to A2 from Aa3
Sydney, December 19, 2008 -- Remove Citigroup Pty Limited from the debt list. Revised release
follows.
Moody's Investors Service lowered the debt ratings of Citigroup Inc.
(senior debt to A2 from Aa3) and the ratings on its lead bank, Citibank
N.A. (long-term bank deposits to Aa3 from Aa1).
The financial strength rating on the bank was lowered three notches to
C from B, which translates to a change in the baseline credit assessment
to A3 from Aa3. The outlook on the bank financial strength rating
is negative and the rating outlooks on the deposit and debt ratings at
both the bank and the holding company are stable. (See below for
a comprehensive list of the downgrades.) These actions had no impact
on the FDIC-guaranteed debt issued by Citigroup which remained
at Aaa with a stable outlook. These rating actions completed a
rating review that was announced on September 29th, 2008.
Moody's said that its downgrade of Citigroup's debt and deposit ratings
was moderated by Moody's opinion that Citigroup enjoys a very high probability
of systemic support from the U.S. government. The
benefits of this systemic support partially offset the deterioration in
Citigroup's stand-alone credit quality, which is driven by
worsening asset quality and the likelihood that Citigroup could see further
decline in its tangible capital base in the next two years.
Moody's said the C financial strength rating reflects an array of sizable
challenges Citigroup will face in the next two years. First,
to address current performance, Moody's is expects that Citigroup's
fourth quarter 2008 results will be saddled by significant marks on its
large inventory of trading assets because of falling market values.
Moody's also expects that in the quarter Citigroup will need to maintain
high loan-loss provisions as the company increases its loan-loss
reserves primarily against its U.S. consumer portfolio and
some of its international credit card portfolios. These negative
developments will likely not be fully offset by the gain on the sale of
Citigroup's German retail operation.
Secondly, "There is the possibility that Citigroup could generate
additional quarterly losses in 2009 and 2010 due to the need to continue
to building loan loss reserves, particularly against its residential
mortgage and credit card portfolios", said Moody's Senior Vice President
Sean Jones. Reserve build will also be needed in response to a
rise in defaults in Citigroup's other loan portfolios because of the global
economic downturn. "The need for large provisions is accentuated
by Citigroup's high single credit exposures", added Mr. Jones.
Finally, the C financial strength rating reflects Moody's expectation
that the recession will depress Citigroup's revenues which will likely
not be offset by Citigroup's ongoing significant cost rationalization
efforts.
Citigroup's weakened earnings prospects, in combination with an
average quarterly preferred dividend of approximately $1.4
billion, makes it very likely that Citigroup will not generate significant
retained earnings throughout 2009 and 2010. As a result regulatory
capital structure will remain heavily skewed towards hybrid equity throughout
2009 and 2010. Moody's noted that Citigroup's regulatory capital
ratios are very high due to the infusion of hybrid regulatory capital
including $45 billion from the U.S. government.
This is very supportive to Citigroup's debt and deposit ratings at a time
when it faces its medium-term challenges. Nevertheless,
Moody's does not view hybrid capital as being as permanent as common equity
over the long term, and that is an important consideration in the
C bank financial strength rating.
Moody's added that Citigroup's challenges go beyond the current operating
environment. To restore its capital position in a sustainable manner,
Citigroup must improve its organizational and operational efficiency,
reduce future concentration risks, and restore competitive advantages
in a number of business lines that have suffered as a result of the recent
turmoil. These tasks require substantial managerial initiatives
and coordination. Moody's believes current management is making
gains on this front, but these changes will take time to achieve
and the complexity of the effort is enormous.
Moody's stated that the U.S. government initiative announced
on November 23, 2008, is very supportive of Citigroup's debt
and deposit ratings. This provided further evidence of the very
high systemic support that Moody's has ascribed to Citigroup. Citibank
N.A.'s deposits get a three-notch lift to Aa3 from
Citibank's baseline credit assessment of A3. Meanwhile, senior
debt at the holding company, viewed by Moody's as structurally subordinated
to bank obligations, is rated A2.
Moody's said that there are two parts to the U.S. government's
initiatives directed towards Citigroup. First, Citigroup
will issue $20 billion of preferred stock to the U.S.
Treasury with an 8% dividend rate, which can be redeemed
in stock or cash, as mutually agreed between the U.S.
Treasury and Citigroup. The infusion of hybrid equity means that
Citigroup regulatory capital ratios will be high.
The second part of the U.S. government initiative is the
Eligible Asset Guarantee, which covers $306 billion of Citigroup's
assets consisting mostly of loans and securities backed primarily by residential
and commercial real estate. These assets will remain on Citigroup's
balance sheet. Citigroup will absorb pre-tax losses up to
$29 billion in addition to existing reserves. Any losses
in excess of that amount will be shared by the U.S. government
(90%) and Citigroup (10%).
Moody's said that the key benefit of the Eligible Asset Guarantee is that
it protects Citigroup from catastrophic losses from that pool of assets.
Moody's noted that its stress loss assumption -- as opposed
to its expected life-time loss assumption -- on this
portfolio exceeds $29 billion. "Given the Government protection,
even if credit costs exceed $29 billion, Citigroup's exposure
to further economic losses on this portfolio would not be meaningful to
the rating," said Moody's Senior Vice President Sean Jones.
In Moody's view, the U.S. government took these actions
to aid Citigroup because it viewed the banking concern as systemically
very important to fulfilling the U.S. government's commitment
to support financial market stability - a prerequisite to restoring
economic growth.
Regarding liquidity, Moody's stated that in the past year Citigroup
has improved the liquidity profile at both the non-bank and the
bank entities. At the non-bank entities, average cash
holdings have increased while the tenure of its debt is long. Regarding
the bank, its liquidity position has improved as a result of the
reduction of its balance sheet. Like its peers, Citigroup's
liquidity profile has also been strongly supported by the infusion of
hybrid equity from the U.S. Treasury, the establishment
of a number of liquidity facilities by the Federal Reserve, and
the ability to issue Aaa rated FDIC- guaranteed debt.
"The negative outlook on C bank financial strength rating reflects the
possible impact that a deep recession could have on assets not covered
by the Eligible Asset Guarantee", said Moody's Mr. Jones.
A particular concern is Citigroup's credit card business. The stable
outlook on the debt and deposit ratings of Citibank and Citigroup reflects
Moody's assumption that Citigroup enjoys a very high probability of systemic
support.
Also the Eligible Asset Guarantee covers Citigroup's most problematic
assets.
Regarding the Baa2 preferred stock rating at the holding company,
Moody's noted that it is two notches lower -- opposed to
one notch lower -- than its subordinated debt rating.
The increased notching is in response to the observation that with Citigroup's
weak earnings prospects, the average quarterly preferred dividend
payment of $1.4 billion is a meaningful barrier to capital
generation. This increases the possibility that preferred dividends
could be deferred.
Moody's last rating action was on September 29, 2008 when the ratings
of Citigroup Inc. where placed under review for possible downgrade.
The principal methodologies used in rating this issuer were "Bank Financial
Strength Ratings: Global Methodology" (February 2007) and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology" (March 2007), which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Ratings downgraded were:
Citigroup Inc. is headquartered in New York City and reported assets
of $2.1 trillion as of September 30, 2008.
Ratings downgraded were:
Issuer: Associates Corporation of North America
..Downgrades:
.... Issuer Rating, Downgraded to A2
from Aa3
....Subordinate Regular Bond/Debenture,
Downgraded to A3 from A1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Associates First Capital Corporation
..Downgrades:
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: CGMH Capital II
..Downgrades:
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: CGMH Capital III
..Downgrades:
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: CGMH Capital IV
..Downgrades:
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: CitiFinancial Credit Company
..Downgrades:
.... Issuer Rating, Downgraded to A2
from Aa3
....Junior Subordinated Shelf, Downgraded
to (P)A3 from (P)A1
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
....Senior Unsecured Shelf, Downgraded
to (P)A2 from (P)Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: CitiFinancial Europe PLC
..Downgrades:
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A3 to A2 from a range of
A1 to Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citibank Europe plc
..Downgrades:
.... Bank Financial Strength Rating,
Downgraded to C from B
....Senior Unsecured Deposit Rating,
Downgraded to A1 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable(m) From
Rating Under Review
Issuer: Citibank International Plc
..Downgrades:
.... Bank Financial Strength Rating,
Downgraded to C from B
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A2 to A1 from a range of
A1 to Aa3
....Senior Unsecured Medium-Term Note
Program, Downgraded to A1 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A1 from Aa3
....Senior Unsecured Deposit Rating,
Downgraded to A1 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable(m) From
Rating Under Review
Issuer: Citibank, N.A.
..Downgrades:
.... Bank Financial Strength Rating,
Downgraded to C from B
.... Issuer Rating, Downgraded to Aa3
from Aa1
....OSO Senior Unsecured OSO Rating,
Downgraded to Aa3 from Aa1
....Senior Unsecured Deposit Note/Takedown,
Downgraded to Aa3 from Aa1
....Senior Unsecured Medium-Term Note
Program, Downgraded to a range of (P)Aa3 to Aa3 from a range of
(P)Aa1 to Aa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa1
....Senior Unsecured Deposit Rating,
Downgraded to Aa3 from Aa1
..Outlook Actions:
....Outlook, Changed To Stable(m) From
Rating Under Review
Issuer: Citibank, N.A. (Auckland Branch)
..Downgrades:
....Senior Unsecured Medium-Term Note
Program, Downgraded to Aa3 from Aa1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citibank, N.A. (London Branch)
..Downgrades:
....Senior Unsecured Medium-Term Note
Program, Downgraded to Aa3 from Aa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citibank, N.A. (Sydney Branch)
..Downgrades:
....Senior Unsecured Medium-Term Note
Program, Downgraded to Aa3 from Aa1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citicorp
..Downgrades:
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A3 to A2 from a range of
A1 to Aa3
....Multiple Seniority Shelf, Downgraded
to a range of (P)Baa2 to (P)A2 from a range of (P)A2 to (P)Aa3
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A2
....Subordinate Medium-Term Note Program,
Downgraded to A3 from A1
....Subordinate Regular Bond/Debenture,
Downgraded to A3 from A1
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citicorp Capital I
..Downgrades:
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital I
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital II
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital III
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital IV
..Downgrades:
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital IX
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital V
..Downgrades:
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital VI
..Downgrades:
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital VII
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital VIII
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital X
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XI
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XII
..Downgrades:
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XIII
..Downgrades:
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XIV
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XIX
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XV
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XVI
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XVII
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XVIII
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XX
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Capital XXI
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Finance Canada Inc
..Downgrades:
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Funding, Inc.
..Downgrades:
.... Issuer Rating, Downgraded to A2
from Aa3
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A3 to A2 from a range of
A1 to Aa3
....Multiple Seniority Shelf, Downgraded
to a range of (P)A3 to (P)A2 from a range of (P)A1 to (P)Aa3
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to A2 from Aa3
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Global Markets Holdings Inc.
..Downgrades:
.... Issuer Rating, Downgraded to A2
from Aa3
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A3 to A2 from a range of
A1 to Aa3
....Multiple Seniority Shelf, Downgraded
to a range of (P)A3 to (P)A2 from a range of (P)A1 to (P)Aa3
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A2
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to A2 from Aa3
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
....Senior Unsecured Shelf, Downgraded
to (P)A2 from (P)Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Citigroup Global Markets Inc.
..Outlook Actions:
....Outlook, Changed To Stable From
Negative
Issuer: Citigroup Global Mkts Deutsch. AG&Co
..Downgrades:
.... Bank Financial Strength Rating,
Downgraded to C from B
....Senior Unsecured Deposit Rating,
Downgraded to A1 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable(m) From
Rating Under Review
Issuer: Citigroup Inc.
..Downgrades:
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A3 to A2 from a range of
A1 to Aa3
....Multiple Seniority Shelf, Downgraded
to a range of (P)Baa2 to (P)A2 from a range of (P)A2 to (P)Aa3
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A2
....Subordinate Regular Bond/Debenture,
Downgraded to A3 from A1
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Egg Banking Plc
..Downgrades:
....Junior Subordinated Regular Bond/Debenture,
Downgraded to Baa2 from A2
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A3 to A2 from a range of
A1 to Aa3
....Subordinate Regular Bond/Debenture,
Downgraded to A3 from A1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
Issuer: SI Financing Trust I
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Source One Mortgage Services Corporation
..Downgrades:
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Washington Mutual Finance Corp.
..Downgrades:
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Stable From
Rating Under Review
Citigroup Inc. is headquartered in New York City and reported assets
of $2.1 trillion as of September 30, 2008.
New York
Sean Jones
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Gregory W. Bauer
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
