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Rating Action:

MOODY'S REVIEWS CITIBANK FOR UPGRADE TO Aaa, AFFIRMS CITIGROUP

08 Jun 2006
MOODY'S REVIEWS CITIBANK FOR UPGRADE TO Aaa, AFFIRMS CITIGROUP

Approximately $800 Billion in Deposits and Long-Term Debt Affected

New York, June 08, 2006 -- Moody's Investors Service placed the long-term ratings of Citibank N.A. (deposits at Aa1 and bank financial strength at A-) and certain of its bank subsidiaries on review for possible upgrade. The ratings of Citigroup Inc. (Aa1, stable) were affirmed.

Citigroup has a well-recognized brand and superb franchises in credit cards, consumer finance, global retail banking, wealth management, and wholesale banking. The breadth of its global distribution is unique. As a result, Citigroup's earnings are unusually diversified by customer, product and geography.

"The fundamental strength of Citigroup's franchises, the size of its customer base and the many aspects of its diversification allow the bank to produce robust and stable earnings, even during challenging economic or market conditions" said Peter Nerby, Senior Vice President at Moody's. For example, during the 2002 to 2004 period, Citigroup produced over $45 billion in net income from continuing operations, despite absorbing nearly $7 billion after-tax in charges for litigation reserves and losses due to Argentina's economic difficulties. In 2005, Citigroup's recurring earnings power exceeded global medians for banks carrying A or A- financial strength ratings.

Citigroup's earnings mix remains a key element in the consideration of an upgrade to Aaa Moody's said. Citigroup's Global Consumer business produced $11 billion in net income (55% of earnings from continuing operations) in 2005, and over $4 billion of that amount was generated internationally. Moody's expects that Citigroup will be able to transfer management and technical expertise from its more mature businesses to capitalize on growth opportunities around the globe.

Citigroup has simplified and refocused the complex organization by exiting insurance and asset management and other non-core activities. The firm has made progress on strengthening culture and improving controls, and has not suffered a major control problem since having to close its Japanese private bank.

However cultural change is a multi-year process and it would be premature to conclude that the company's announced "five point plan" for change has been fully successful. Management must continue to solidify cultural change, notwithstanding shareholder pressure for earnings growth, Moody's said.

Moody's said the affirmation of Citigroup Aa1 ratings with a stable outlook reflects the implicit subordination of holding company creditors as well as first-tier double leverage of 118% as of 12/31/05. If Citibank's ratings are upgraded, then this would also restore a one-notch differential between the ratings of bank deposits and holding company senior debt, which is more typical notching for such obligations on Moody's rating scale.

Moody's said the review will focus primarily on Citigroup's risk management framework and processes with a particular emphasis on its capital markets and proprietary investing activities. Moody's will assess the effectiveness of risk controls, measurement and information infrastructure as well as the firm's risk governance and culture. Moody's expects that the results of the assessment will compare favorably with other major institutions active in global capital markets.

A second major element of the review will focus on Citigroup's plans to accelerate growth in income and earnings per share, and how this might impact creditor protection metrics such as risk-adjusted profitability and capital adequacy measures. Moody's expects to conclude the review by September 30, 2006.

The following is a list of the entities whose ratings have been placed on review for possible upgrade:

Citibank N.A.

Citibank West FSB

Citibank (Nevada) NA

Citibank South Dakota NA

Citibank International PLC

Citibank Ireland Financial Services PLC

Citibank Pty Limited

Citigroup Global Markets Deutschland

Citibank NA (Auckland)

Citibank NA (Sydney)

The ratings of the following entities were affirmed:

Citigroup Inc.

The ratings of the following entities, whose debts are guaranteed by Citigroup Inc, were affirmed:

Citigroup Funding Inc.

Citigroup Global Markets Holdings Inc.

Citigroup reported $5.6 billion in net income in the first quarter of 2006.

New York
Gregory W. Bauer
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter E. Nerby
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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