New York, September 21, 2011 -- Moody's Investors Service confirmed the A3 long-term rating
of Citigroup and the A1 long-term and Prime-1 short-term
ratings of Citibank N.A. At the same time, Moody's
downgraded the short-term rating of Citigroup (the holding company)
to Prime-2 from Prime-1. The actions conclude a review
for possible downgrade announced on June 2, 2011. The outlook
on the long-term senior ratings remains negative.
The confirmations reflect two offsetting factors: a decrease in
the probability that the US government would support the bank, if
needed, and an improvement in the bank's stand-alone
credit profile reflected in an increase in Citibank N.A.'s
unsupported baseline credit assessment (BCA) to Baa1 from Baa2.The
downgrade of the short-term rating of Citigroup results from the
reduced assumption of systemic support. Typically A3-rated
companies are rated Prime-2 for their short-term obligations.
Citigroup's Prime-1 had been an exception to this general
practice, based on the view that short-term creditors benefited
the most from the unusually high level of government support provided
to banks during the financial crisis. The downgrade to Prime-2
is not a reflection of Citigroup's liquidity profile, which
strengthened significantly in the past two years and is robust.
The ratings affected are as follows:
Citigroup Inc.: Moody's confirmed the A3 long-term
rating of Citigroup Inc. but downgraded its short-term rating
to Prime-2 from Prime-1. The holding company's
long-term senior debt ratings now incorporate two notches of uplift
due to systemic support, down from three notches previously.
Citibank N.A.: Moody's confirmed or affirmed
all of the bank's supported ratings (A1 for deposits and senior
debt and short-term at Prime-1). The bank's
deposit and senior debt ratings now incorporate three notches of uplift
due to systemic support, down from four notches previously.
At the same time, the unsupported bank financial strength rating
(BFSR) of C- was affirmed, but the bank's corresponding
unsupported BCA was raised to Baa1 from Baa2.
Hybrid-equity securities issued by or guaranteed by Citigroup Inc.,
which do not incorporate any government support, were upgraded by
one notch reflecting the one notch improvement in the bank's unsupported
BCA. Junior subordinated securities were upgraded to Baa3 (hyb)
from Ba1 (hyb).
Moody's will publish separate press releases on other institutions
covered by the review announced on June 2, 2011.
RATINGS RATIONALE
The reduction in support assumptions resulted in Moody's lowering
the short-term rating of Citigroup Inc. to Prime-2
from Prime-1, even though Citigroup's long-term
rating was confirmed at A3. Issuers that are rated A3 are normally
also rated Prime-2 by Moody's. Citigroup's Prime-1
was an exception based on the unusually high level of government support
provided during the crisis to important financial institutions to the
benefit of short-term creditors. With the return of government
support to pre-crisis levels, the short-term rating
is now positioned at the more common Prime-2 level relative to
the A3.
Moody's confirmed the long-term ratings on Citigroup and
Citibank at current levels because the rating impact of a fall in Moody's
government support assumptions was offset by an improvement in Citibank
N.A.'s intrinsic credit strength as reflected in the
increase in its stand-alone BCA to Baa1 from Baa2.
The rating uplift from Moody's government support assumptions for
Citibank N.A.'s deposits, senior-debt,
and senior-subordinated-debt ratings is now three notches,
as opposed to the previous four. This represents a pre-crisis
level of support.
Moody's continues to see the probability of support for highly interconnected,
systemically important institutions in the United States to be very high,
although that probability is lower than it was during the financial crisis.
During the crisis, the risk of contagion to the US and global financial
system from a major bank failure was viewed as too great to allow such
a failure to occur -- a view borne out in the aftermath of the Lehman
failure. This led the government to extend an unusual level of
support to weakened financial institutions and Moody's to incorporate
the expectations of such support in its ratings. Now, having
moved beyond the depths of the crisis, Moody's believes there
is an increased possibility that the government might allow a large financial
institution to fail, taking the view that contagion could be limited.
Moody's decision to assign a negative rating outlook reflects the
possibility it may further reduce its systemic support assumptions in
the future as a consequence of the process set in motion by the enactment
of the Dodd-Frank Act. Under the rules recently finalized
by the FDIC, the orderly liquidation authority included in Dodd-Frank
demonstrates a clear intent to impose losses on bondholders in the event
that a systemically-important banking group (such as Citigroup)
was nearing failure. If fully implemented, the provisions
in Dodd-Frank could further lower systemic risk by reducing interconnectedness
among large institutions and could further strengthen regulators'
abilities to resolve such firms.
However, the final form of several critical components of Dodd-Frank
intended to reduce such interconnectedness, such as resolution plans
or changes to the over-the-counter derivatives market,
are still pending. There is also no global process yet in place
whereby regulators could resolve a global financial company such as Citigroup
in an orderly fashion. As a result, Moody's believes
that it would be very difficult for the US government to utilize the orderly
liquidation authority to resolve a systemically important bank without
a disruption of the marketplace and the broader economy.
The increase in Citibank N.A.'s unsupported BCA to
Baa1 from Baa2 reflects improvement in Citigroup's risk profile
and progress in installing better risk management. The improvement
in the risk profile is a product of 1) much higher capital, which
was initiated by the government-led bailout in the third quarter
of 2009, 2) new management effectively reducing a sizable inventory
of problematic assets, during a time when the government's
ownership was reduced to zero, 3) the installation of a risk-management
framework that is reducing risk concentrations, and 4) the improvement
in the liquidity profile of both the bank and non-bank entities.
The outlook on the BFSR is stable.
The principal methodologies used in rating were "Bank Financial
Strength Ratings: Global Methodology" published in February
2007, "Incorporation of Joint-Default Analysis into
Moody's Bank Ratings: A Refined Methodology" published in
March 2007, and "Moody's Guidelines for Rating Bank Hybrid
Securities and Subordinated Debt" published in November 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Citigroup Inc. is headquartered in New York City. Its reported
assets were $1,957 billion at June 30, 2011.
A detailed list of the affected ratings is available on Moody's website,
which may be accessed by clicking here
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Sean Jones
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Citigroup Inc to P-2; Citibank Prime-1 affirmed; all long-term senior ratings confirmed
