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Related Issuers

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Rating Action:

Moody's reviews Citi (snr Aa3) for possible downgrade

29 Sep 2008

New York, September 29, 2008 -- Moody's Investors Service placed its ratings on Citigroup, Inc. (senior at Aa3) and its subsidiaries including its lead bank, Citibank N.A (B for financial strength and Aa1 for deposits), under review for possible downgrade. The review follows the announcement that Citigroup will acquire the bank and thrift assets of Wachovia Corporation for $2.1 billion in stock, which is substantially below Wachovia's consolidated book equity of $65 6 billion. Citigroup also announced that it will assume the senior and subordinated debt including the junior subordinated debt of Wachovia Corporation.

Additional terms of the agreement and actions taken by Citigroup include:

• Citigroup will "ring fence" $312 billion of Wachovia's assets where Citigroup has a first-loss exposure of $42 billion. Losses beyond that amount will be taken by the FDIC.

• Citigroup will issue $10 billion of common stock and has granted the FDIC $12 billion of preferred stock and warrants. Citigroup will also cut its quarterly common dividend to approximately $850 million from $1.7 billion.

• Citigroup will not acquire Wachovia's retail brokerage operations, Wachovia Securities, or Wachovia's asset management operations, Evergreen.

Moody's said that the terms of the deal hold a number of positive features for Citigroup. The Wachovia purchase will boost Citigroup's U.S. deposit business, giving greater balance to its U.S. retail banking operations. In the past, Citigroup's U.S. retail business was skewed towards loan products. An expanded deposit business will support both earnings diversity and liquidity, said Moody's. Moody's also said the terms of the deal provided credit protection in that the purchase price was very low, and there is protection against extreme losses provided by the FDIC put.

Despite these positives, Moody's placed Citigroup's ratings under review for possible downgrade because the acquisition imposes integration challenges at a time when Citigroup's asset quality is being undermined by weakening consumer and commercial markets.

Moody's said that the review will focus on five broad considerations.

The first is the potential credit costs Citigroup faces in its own portfolios and in those acquired from Wachovia. These portfolios face rising pressure as a result of a weaker economic environment, and Moody's will also revisit the level of stress that should be applied to its expected loss assumptions.

The second consideration is the impact that these losses will have on Citigroup's capital. Moody's will weigh potential increased credit costs against the benefits of the following: (1) Citigroup's purchase of Wachovia's assets and liabilities at substantially below book value, (2) the put arrangement Citigroup has with the FDIC on Wachovia's "ring fenced" assets, (3) Citigroup's capital raise, and (4) Citigroup's reduced dividend.

The third consideration is Citigroup's ability to integrate Wachovia's large banking operations into Citigroup's smaller U.S. direct banking operations. The integration challenges are enhanced because Citigroup is in the midst of restructuring its businesses while managing a number of problematic portfolios. During the review Moody's will also monitor the closing of the transaction and will assess the ultimate legal structure of the enlarged company including the position of the Wachovia creditors in this structure and Citigroup's plans to assume all outstanding debt obligations of Wachovia.

The fourth consideration is the potential franchise enhancement that the Wachovia acquisition presents to Citigroup, as discussed above. Citigroup's U.S. operations have lacked a sizable domestic retail operation, and Wachovia can fill this void, said Moody's.

Finally, Moody's will also consider the evolving nature of the actions taken by regulators in the United States and the ratings implications of these actions on the firm's various classes of creditors.

Ratings under review are:

On Review for Possible Downgrade:

..Issuer: Associates Corporation of North America

....Issuer Rating, Placed on Review for Possible Downgrade, currently Aa3

....Subordinate Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently A1

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa3

..Issuer: Associates First Capital Corporation

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa3

..Issuer: CGMH Capital II

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: CGMH Capital III

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: CGMH Capital IV

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: CitiFinancial Credit Company

....Issuer Rating, Placed on Review for Possible Downgrade, currently Aa3

....Junior Subordinated Shelf, Placed on Review for Possible Downgrade, currently (P)A1

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Aa3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa3

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)Aa3

..Issuer: CitiFinancial Europe PLC

....Multiple Seniority Medium-Term Note Program, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citibank (South Dakota), N.A.

....Bank Financial Strength Rating, Placed on Review for Possible Downgrade, currently B

....Issuer Rating, Placed on Review for Possible Downgrade, currently Aa1

....OSO Senior Unsecured OSO Rating, Placed on Review for Possible Downgrade, currently Aa1

....Senior Unsecured Deposit Rating, Placed on Review for Possible Downgrade, currently Aa1

..Issuer: Citibank Europe plc

....Bank Financial Strength Rating, Placed on Review for Possible Downgrade, currently B

....Senior Unsecured Deposit Rating, Placed on Review for Possible Downgrade, currently Aa3

..Issuer: Citibank International Plc

....Bank Financial Strength Rating, Placed on Review for Possible Downgrade, currently B

....Multiple Seniority Medium-Term Note Program, Placed on Review for Possible Downgrade, currently A1

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Aa3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa3

....Senior Unsecured Deposit Rating, Placed on Review for Possible Downgrade, currently Aa3

..Issuer: Citibank, N.A.

....Bank Financial Strength Rating, Placed on Review for Possible Downgrade, currently B

....Issuer Rating, Placed on Review for Possible Downgrade, currently Aa1

....OSO Senior Unsecured OSO Rating, Placed on Review for Possible Downgrade, currently Aa1

....Senior Unsecured Deposit Note/Takedown, Placed on Review for Possible Downgrade, currently Aa1

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently (P)Aa1

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa1

....Senior Unsecured Deposit Rating, Placed on Review for Possible Downgrade, currently Aa1

..Issuer: Citibank, N.A. (Auckland Branch)

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Aa1

..Issuer: Citibank, N.A. (London Branch)

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Aa1

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa1

..Issuer: Citibank, N.A. (Sydney Branch)

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Aa1

..Issuer: Citicorp

....Multiple Seniority Medium-Term Note Program, Placed on Review for Possible Downgrade, currently A1

....Multiple Seniority Shelf, Placed on Review for Possible Downgrade, currently (P)A2

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A2

....Subordinate Medium-Term Note Program, Placed on Review for Possible Downgrade, currently A1

....Subordinate Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently A1

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Aa3

..Issuer: Citicorp Capital I

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citicorp Capital II

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital I

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital II

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital III

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital IV

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital IX

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital V

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital VI

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital VII

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital VIII

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital X

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital XI

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital XII

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital XIII

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)A1

..Issuer: Citigroup Capital XIV

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital XIX

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital XV

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital XVI

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital XVII

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital XVIII

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital XX

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Capital XXI

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A1

..Issuer: Citigroup Finance Canada Inc

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Aa3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa3

..Issuer: Citigroup Funding, Inc.

....Issuer Rating, Placed on Review for Possible Downgrade, currently Aa3

....Multiple Seniority Medium-Term Note Program, Placed on Review for Possible Downgrade, currently A1

....Multiple Seniority Shelf, Placed on Review for Possible Downgrade, currently (P)A1

....Senior Unsecured Conv./Exch. Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa3

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Aa3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa3

..Issuer: Citigroup Global Markets Holdings Inc.