Fitch Ratings has downgraded Citigroup's Issuer Default Rating (IDR) to 'A+' from 'AA-' and removed the rating from Rating Watch Negative. Fitch has also affirmed Citi's short-term IDR at 'F1+'. The Rating Outlook is Stable. A complete list of ratings follows this release.
Citigroup's agreement with the US Treasury provides for long term support for a portfolio of challenged assets. U.S. government support will include a capital injection of $27 billion of new government preferred stock, a loss cap guarantee from the government on $306 billion of Citi's assets and expanded government liquidity support in the event of need. As part of the government's loss cap guarantee, Citi will absorb the first $29 billion of pre-tax losses on the segregated portfolio. Thereafter, the government will absorb 90% of losses, while Citi will recognize an additional 10%.
The downgrade of Citi's long-term IDR recognizes future pressures from an expected U.S. recession and continued economic difficulties globally. The magnitude of demonstrated U.S. government support is the overarching reason for the Stable Rating Outlook. Citi's importance to the global financial system and the demonstrated U.S. government support drive an upgrade of the support floor to A+ for both Citigroup Inc. and Citibank N.A.
The government's loss cap substantially lowers the 'long tail' risk on a considerable portfolio of loans and securities. Consequently, Citi will receive a 20% risk-weighting on these assets for regulatory capital purposes. This is a stabilizing factor from an asset quality perspective. Nevertheless, growing levels of problem loans in other categories remain a concern. Continued economic difficulties will likely spur increases in other areas of domestic and international nonperforming assets.
In its Securities and Banking segment, Citi has reduced its exposure to topical areas such as subprime ABS CDOs, Alt-A securities, leveraged finance, CMBS and CRE equity investments, monolines, auction-rate securities and SIVs. At the end of third-quarter 2008, combined assets in these categories were still sizeable at $113 billion (5.5% of total assets) versus $203 billion at year-end 2007 (9.3% of total assets). Many of these categories are expected to be included in the segregated portfolio.
The latest capital infusion for the U.S. government will boost the Tier I ratio to close to 15% on a proforma basis. However, Citi will have $100 billion in preferred and trust preferred instruments in its capital structure going forward. With this in mind, Fitch has downgraded Citi's preferred stock rating to 'BBB' and kept it on Rating Watch Negative. Both the large size and associated coupon costs of these instruments have raised the possibility of deferral if Citi's financial situation does not stabilize over the next few quarters.
Fitch has downgraded the following ratings with a Stable Outlook:
Citigroup Inc.
--Long-term IDR to 'A+' from 'AA-';
--Individual to 'C' from 'B';
--Senior unsecured to 'A+' from 'AA-';
--Subordinated to 'A' from 'A+'.
Citigroup Funding Inc.
--Long-term IDR to 'A+' from 'AA-';
--Senior unsecured to 'A+' from 'AA-';
Citigroup Global Markets Holdings Inc.
--Long-term IDR to 'A+' from 'AA-';
--Senior unsecured to 'A+' from 'AA-';
--Subordinated 'A' from 'A+';
Citibank NA
--Long-term IDR to 'A+' from 'AA-';
--Individual to C from 'B';
--Long term deposits to 'AA-' from 'AA'.
Citibank International PLC
--Long-term IDR to 'A+' from 'AA-'.
Citibank (South Dakota)
--Long-term IDR 'A+' from 'AA-';
--Individual to C from 'B';
--Long-term deposits 'AA-' from 'AA'.
Citibank Banamex USA
--Long-term IDR to 'A+' from 'AA-';
--Individual to C from 'B';
--Subordinated 'A' from 'A+';
--Long-term deposits 'AA-' from 'AA';
CitiFinancial Europe plc
--Long-term IDR to 'A+' from 'AA-';
--Senior unsecured to 'A+' from 'AA-';
--Senior shelf to 'A+' from 'AA-';
--Subordinated to 'A' from 'A+'.
Citigroup Derivatives Services LLC.
--Long-term IDR 'A+' from 'AA-';
Citibank Canada
--Long-term IDR to 'A+' from 'AA-';
--Long-term deposits to 'A+' from 'AA-'.
Egg Banking plc (UK)
--Senior unsecured to 'A+' from 'AA-';
--Subordinated 'A' from 'A+';
Nikko Citi Holdings Inc.
--Long-term IDR to 'A+' from 'AA-';
--Local Currency LT IDR to 'A+' from 'AA-'.
Nikko Cordial Securities
--Long-term IDR to 'A+' from 'AA-';
--Local Currency LT IDR 'A+' from 'AA-'.
Citibank Japan, Ltd.
--LT IDR to 'A+' from 'AA-';
--Local currency LT IDR to 'A+' from 'AA-';
Citibank Korea Inc.
--Long-term IDR to 'A+' from 'AA-';
--Subordinated to 'A' from 'A+'.
Commercial Credit Company
--Senior unsecured to 'A+' from 'AA-'.
Associates Corporation of North America
--Senior unsecured to 'A+' from 'AA-';
--Subordinated to 'A' from 'A+'.
Fitch has also upgraded the following ratings:
Citigroup Inc.
--Support to 1 from '5';
--Support Floor to A+ from 'NF'.
Citibank NA
--Support Floor to A+ from 'A-'.
Citibank (South Dakota)
--Support floor to A+ from 'A-'.
Citibank Banamex USA
--Support Floor to A+ from 'A-'.
Additionally, Fitch has affirmed the following ratings with a Stable Outlook:
Citigroup Inc.
--Short-term IDR at 'F1+'.
Citibank NA
--Short-term IDR 'F1+';
--Short-term deposits 'F1+';
--Support at '1'.
Citigroup Funding Inc.
--Short-term IDR 'F1+';
--Short-term debt 'F1+'.
Citigroup Global Markets Holdings Inc.
--Short-term IDR 'F1+';
--Short-term debt 'F1+'.
Citibank International PLC
--Short-term IDR 'F1+';
--Support at '1'.
Citibank (South Dakota)
--Short-term IDR 'F1+';
--Short-term deposits 'F1+';
--Support at '1'.
Citibank Banamex USA
--Short-term IDR 'F1+';
--Short-term deposits 'F1+';
--Support at '1';
Citigroup Derivatives Services LLC.
--Short-term IDR 'F1+';
--Support at '1'.
Nikko Citi Holdings Inc.
--Short-term IDR at 'F1+';
--Local currency short-term IDR at 'F1+';
--Support at '1'.
Nikko Cordial Securities
--Short-term IDR at 'F1+';
--Local currency short-term IDR at 'F1+';
--Support at '1'.
Citibank Japan, Ltd.
--Short-term IDR at 'F1+';
--Local currency short-term IDR 'F1+';
--Support at '1'.
Citibank Korea Inc.
--Short-term IDR 'F1+';
--Support at '1'.
Fitch has also downgraded the following ratings and kept them on Rating Watch Negative:
Citigroup Inc.
--Preferred to 'BBB' from 'A+'.
Citigroup Capital III, IV, V, VI, VII, VIII, IX, X, XIV, XV, XVI, XVII, XVIII, XIX, XX, XXI, XXIX, XXX, XXXI, and XXXII
--Preferred to 'BBB' from 'A+'.
Adam Capital Trust II, III, Adam Statutory Trust I-V
--Preferred to 'BBB' from 'A+'.
The following ratings remain at their current levels:
Nikko Cordial Securities
--Individual 'C'.
Citibank Korea Inc.
--Individual 'B/C';
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.