NEW YORK--(BUSINESS WIRE)--Fitch Ratings has today affirmed the Issuer Default Ratings (IDRs) for Citigroup, Inc. (Citi) at 'A/F1' and the Viability Rating (VR) at 'a-'. The Rating Outlook is Stable. This action is in tandem with Fitch's broad assessment of the large global banking institutions. A full list of rating actions follows at the end of this press release.
The rating actions on Citi have been taken in conjunction with Fitch's Global Trading and Universal Bank (GTUB) periodic review. Fitch's outlook for the industry is stable. Positive rating drivers include improved liquidity, funding, capitalization and more streamlined businesses, all partly driven by regulation. Offsetting these positive drivers are substantial earnings pressure, regulatory uncertainty and heightened legal and operational risk.
KEY RATING DRIVERS - IDRs, SENIOR DEBT, SUPPORT RATING AND SUPPORT RATING FLOOR
Citi's IDR is at its Support Rating Floor (SRF) and is therefore based on support from the U.S. government. The affirmation of the IDR, Support Rating and SRF reflect Fitch's unchanged view that there is an extremely high probability that Citi would receive support from the authorities if required because of the bank's systemic importance domestically and internationally.
The Stable Outlook on Citi's long-term IDR reflects Fitch's view that sovereign support for the bank will continue to be available.
RATING SENSITIVITIES - IDRs, SENIOR DEBT, SUPPORT RATING AND SUPPORT RATING FLOOR
Citi's IDRs, Support Rating, SRF and senior debt ratings are sensitive to a change in Fitch's assumptions about the availability of sovereign support for the bank. There is a clear political intention to ultimately reduce the implicit state support for systemically important banks in Europe and the U.S., as demonstrated by a series of policy and regulatory initiatives aimed at curbing systemic risk posed by the banking industry. This might result in Fitch revising SRFs downward in the medium term, although the timing and degree of any change would depend on developments with respect to specific jurisdictions. In this context, Fitch is paying close attention to ongoing policy discussions around support and 'bail in' for U.S. and Eurozone banks. Until now, senior creditors in major global banks have been supported in full, but resolution legislation is developing quickly and the implementation of creditor 'bail-in' is starting to make it look more feasible for taxpayers and creditors to share the burden of supporting large, complex banks.
Any downgrade of Citi's SRF would lead to a downgrade of the bank's IDRs. In line with Fitch's criteria, the bank's Long-term IDR is the higher of the Viability Rating (VR) and the SRF.
KEY RATING DRIVERS - VR
Citi's Viability Rating of 'a-' reflect the company's solid capital and liquidity profiles, as well as its diverse revenue mix and expansive international franchise. The standalone rating is offset by weak asset quality and the drag to earnings and capital from Citi Holdings, which manages the company's liquidating non-core assets.
Fitch notes that Citi has made considerable progress to date with regard to capital, liquidity, and most recently earnings. Citi's earnings performance in 1Q13 was strong, with a very respectable return of assets of 86bps (excluding CVA/DVA). Fitch considers this a good improvement over the past several years, which has included a continued litany of one-time items.
Citi's capital continues to build every quarter, and at March 31, 2013, Citi reported an estimated Tier 1 common under Basel III of 9.3%. Citi expects its Tier 1 common ratio will reach at least 10% by year-end 2013, which appears to be a realistic forecast. Fitch notes that Citi performed very well during the most recent regulatory stress tests, and its capital request was considered very modest. Further, Citi's own internal stress tests results were also very similar to the Federal Reserve's results, which are likely viewed favorably by the regulators. Not surprising, projected loan losses were very high for Citi, and more than the other U.S. GTUBs. Approximately 40% of estimated loan losses were from Citi's very large credit card portfolio.
Overall, Citi's liquidity profile continues to remain very strong. At March 31, 2013, Citi reported over $370 billion in cash and unencumbered liquid securities or 19% of total assets. Citi estimates that it is currently in compliance with an estimated Liquidity Coverage Ratio (LCR) of 116%.
Despite the improving financial profile, asset quality remains weak. Nonperforming assets (inclusive of accruing troubled debt restructurings) were approximately 5.6% of loans and foreclosed real estate at March 31, 2013. Much of the problem assets are still housed in Citi Holdings, which continues to wind down, albeit at a moderating pace.
Citi Holdings' total assets were $149 billion or 8% of consolidated assets, down considerably from several years ago. However, Citi Holdings comprises 23% of risk-weighted assets (under Basel III), and continues to be a drag on overall profitability. After-tax losses averaged around $1 billion a quarter in 2012, mainly due to net credit losses, mortgage repurchase builds, and elevated legal and related costs. The earnings drag was less in 1Q13, at roughly $800 million, with much of the improvement due to lower credit costs and loan loss reserve release. Fitch expects a gradual reduction of the remaining non-core assets managed by Citi Holdings.
RATING SENSITIVITIES - VR
Positive rating momentum for the VR to the 'a' level would likely be predicated on a more consistent earnings profile, combined with maintenance of the company's current capital and liquidity levels. Fitch views Citi's overall credit profile as improving, with a greater likelihood of upward ratings momentum than downward over the near to intermediate term.
Similar to other GTUBs, Citi is still faced with elevated legal costs, higher regulatory costs, and a challenging interest rate environment. Although though not considered a likely outcome, the VR could face downward pressure if litigation related losses or other material charges resulted in a meaningful decline of capital ratios. With such expansive operations around the globe, Citi is also exposed to elevated levels of operational risk. Although not currently assumed, Citi's VR could be adversely impacted with a large operational loss. Fitch believes these challenges are well-identified, and likely represent a remote risk for Citi.
KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid securities issued by Citi and its subsidiaries are all notched down from Citi's or its bank subsidiaries' VR in accordance with Fitch's assessment of each instrument's respective nonperformance and relative loss severity risk profiles. Their ratings are all primarily sensitive to any changes in the VRs of Citi or its subsidiaries.
RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings of subordinated debt and other hybrid capital issued by Citi and its subsidiaries are primarily sensitive to any changes in the VRs of Citi or its subsidiaries.
KEY RATING DRIVERS - HOLDING COMPANY RATING DRIVERS
Citi's IDR and VR are equalized with those of its operating companies and banks, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Should Citi's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies.
RATINGS SENSITIVITIES - HOLDING COMPANY
Should Citi's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies.
KEY RATING DRIVERS - SUBSIDIARY AND AFFILIATED COMPANY
The IDRs and VRs of Citi's bank subsidiaries benefit from the cross-guarantee mechanism in the U.S. under FIRREA, and therefore the IDRs and VRs of Citibank, N.A. and Citibank Banamex USA are equalized across the group.
The IDRs and VRs of Citi's other major rated operating subsidiaries are equalized with Citi's IDR reflecting Fitch's view that these entities are core to Citi's business strategy and financial profile. These entities include: Citigroup Funding Inc, Citigroup Global Markets Holdings Inc, Citigroup Global Markets Limited, Citigroup Derivatives Services LCC, Citibank Canada, Citibank Japan Ltd, CitiFinancial Europe plc, and Citibank International PLC, whose IDRs would be sensitive to the same factors that might drive a change in Citi's IDR.
RATING SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANY
As the IDRs of the subsidiaries are equalized with those of Citi to reflect support from their ultimate parent, they are sensitive to changes in Citi's IDRs.
Fitch has affirmed the following ratings:
Citigroup Inc.
--Long-term IDR at 'A' with a Stable Outlook;
--Senior unsecured at 'A';
--Subordinated at 'BBB+';
--Preferred at 'BB';
--Short-term IDR at 'F1';
--Support at '1';
--Support floor at 'A';
--Viability Rating at 'a-'.
Citibank, N.A.
--Long-term IDR at 'A' with a Stable Outlook;
--Long term deposits at 'A+';
--Short-term IDR at 'F1';
--Short-term deposits at 'F1';
--Support at '1';
--Support Floor at 'A';
--Viability Rating at 'a-';
--Long-term FDIC guaranteed debt at 'AAA'.
Citibank Banamex USA
--Long-term IDR at 'A';
--Subordinated at 'BBB+';
--Long-term deposits at 'A+';
--Short-term IDR at 'F1';
--Short-term deposits at 'F1';
--Viability Rating at 'a-';
--Support at '1';
--Support Floor at 'A'.
Citigroup Funding Inc.
--Senior unsecured at 'A';
--Short-term debt at 'F1';
--Market linked securities at 'A emr';
--Long-term FDIC guaranteed debt at 'AAA'.
Citigroup Global Markets Holdings Inc.
--Long-term IDR at 'A';
--Senior unsecured at 'A';
--Short-term IDR at 'F1';
--Short-term debt at 'F1'.
Citigroup Global Markets, Inc.
--Senior Secured at 'A';
--Short-term debt at 'F1'.
Citigroup Global Markets Limited
--Long-term IDR 'A';
--Short-term IDR 'F1';
--Senior unsecured long-term notes 'A';
--Short-term debt at 'F1'.
Citigroup Derivatives Services LLC.
--Long-term IDR at 'A';
--Short-term IDR at 'F1';
--Support at '1'.
Citibank Canada
--Long-term IDR at 'A';
--Long-term deposits at 'A'.
Citibank Japan Ltd.
--Long-term IDR at 'A';
--Short-term IDR at 'F1';
--Long-term IDR (local currency) at 'A';
--Short-term IDR (local currency) at 'F1';
--Support at '1'.
CitiFinancial Europe plc
--Long-term IDR at 'A';
--Senior unsecured at 'A';
--Senior shelf at 'A';
--Subordinated at 'BBB+'.
Citibank International PLC
--Long-term IDR at 'A';
--Short-term IDR at 'F1';
--Support affirmed at '1'.
Commercial Credit Company
--Senior unsecured at 'A'.
Associates Corporation of North America
--Senior unsecured at 'A'.
Egg Banking plc
--Subordinated at 'BBB+'.
Citigroup Capital III, IX, X, XIII, XVI, XVII, XVIII
--Trust preferred at 'BB+'.
Adam Capital Trust III, Adam Statutory Trust III, IV, V
--Trust preferred at 'BB+'.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'Securities Firms Criteria' (Aug. 15, 2012);
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 5, 2012).
Applicable Criteria and Related Research
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Securities Firms Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686137
Assessing and Rating Bank Subordinated and Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=791348
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