Fitch Affirms Citigroup’s Ratings on Increased Ownership of Nikko Cordial

Fitch Affirms Citigroup’s Ratings on Increased Ownership of Nikko Cordial

Fitch Ratings has affirmed Citigroup Inc.’s ratings and the ratings of its related entities following a full review and discussion of Citigroup Inc.’s increased ownership in Nikko Cordial. Long-term debt is increasing as non-bank operations expand. Citigroup has arranged a credit facility to finance its acquisition of Nikko Cordial. This is expected to be eventually replaced with additional long-term debt. Approximately $311 billion dollars of debt is currently outstanding.

Citigroup Inc.’s ratings are affirmed as follows:

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Short term Issuer Default Rating (IDR) at ‘F1+’;

–Individual at ‘A’;

–Support at ‘5′;

–Senior Unsecured at ‘AA+’;

–Subordinated/Preferred at ‘AA’.

The Rating Outlook on Citigroup Inc. is Stable. A detailed list of the affirmed ratings of Citigroup Inc.’s related entities is included at the end of this release.

Strong ratings are based on Citigroup’s diversified franchise, commitment to healthy liquidity and peer level capital. Citigroup’s powerful franchise in global retail and investment banking impart a high level of earnings. Earnings are presently being reinvested at a rapid rate through acquisition and organic build-outs. While shareholders note disappointment in earnings growth rates, profitability is generally at the top end of its peers. Credit quality is on par with peers although Citigroup remains somewhat overexposed to the U.S. consumer, a result of its strength in credit cards.

Liquidity is very well managed and although highly centralized, dependent upon local management to ensure sufficient access to markets under normal and stress scenarios. Citibank NA, the U.S. flagship bank, is reliant on foreign depositors for a majority of its funding; many of whom have historically relied on Citibank for its strength in times of local crisis. Its U.S. retail franchise is more geographically limited in the U.S. although growing through branch and internet based investment. While organic international branches are profitable generally in one year, profitability of U.S.- based retail branches is not expected until year three. The expansion of CitiFinancial and Citigroup Global Markets Holdings Inc. has been good, at strong profit margins and contributing solidly to firm performance.

Recent acquisitions are expected to be accretive to profits within the first year. Fitch believes Citigroup may be challenged with a few of these acquisitions as it balances opportunity against its need for growth and greater diversification. Several acquisitions, including the largest, Nikko Cordial, could challenge management, particularly with its parallel announcement of middle management restructuring. Nikko Cordial is certainly a grand opportunity although at a higher price than perhaps originally expected. Integration of Nikko Cordial, Egg plc, Guangdong Bank and ABN Amro’s U.S. based mortgage business all face some initial challenges, albeit the last on a much smaller scale.

At the same time, management has launched a broad effort at improving efficiency, decision making and cultural mind set all relatively quickly after resolving a number of various reputation missteps.

Fitch believes Citigroup’s ratings are firmly in a high rating category. However, some downward pressure exists from the numerous efforts of growth, acquisition and efficiency that serve to pressure tangible common equity, profitability and management turnover. Stability in earnings will result from successful integration of acquisitions, improved operating leverage, higher levels of retained equity and increased stability in senior holding company management.

Credit risk is expected to increase gradually in the near term as delinquency rates return to a more normal level and should not pressure ratings. Citigroup has increased its reserves allocated to the corporate portfolio due to growth and increased exposure to the leveraged loan market. Consumer credit ratios show marginal downward trends. Credit deterioration in the U.S. consumer group would negatively impact earnings but sufficient capital is maintained so as not to threaten credit ratings.

The following ratings of Citigroup Inc.’s related entities are affirmed. The Rating Outlook on all of the related entities is Stable.

Citigroup Funding Inc.

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Short term Issuer Default Rating (IDR) at ‘F1+’;

–Senior unsecured at ‘AA+’;

–Short-term at ‘F1+’.

Citigroup Global Markets Holdings Inc.

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Short term Issuer Default Rating (IDR) at ‘F1+’;

–Senior unsecured at ‘AA+’;

–Subordinated at ‘AA’;

–Short-term at ‘F1+’.

Citibank NA

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Short term Issuer Default Rating (IDR) at ‘F1+’;

–Individual at ‘A’;

–Support at ‘1′;

–Support Floor at ‘A-’;

–Long term deposits at ‘AAA’;

–Short term deposits at ‘F1+’.

Citibank International PLC

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Short term Issuer Default Rating (IDR) at ‘F1+’;

–Support at ‘1′;

Citibank (South Dakota)

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Short term Issuer Default Rating (IDR) at ‘F1+’;

–Individual at ‘A’;

–Support at ‘1′;

–Support Floor at ‘A-’;

–Long term Deposits at ‘AAA’;

–Short term Deposits at ‘F1+’.

Citibank Banamex USA

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Short term Issuer Default Rating (IDR) at ‘F1+

–Individual at ‘A’;

–Support at ‘1′;

–Support floor at ‘A-’;

–Subordinated/Preferred at ‘AA’;

–Long-term deposits at ‘AAA’;

–Short-term deposits at ‘F1+’.

CitiFinancial Europe plc

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Senior unsecured at ‘AA+’;

–Subordinated at ‘AA’.

Citigroup Derivatives Services LLC.

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Short term Issuer Default Ratings (IDR) at ‘F1+’;

–Support at ‘1′.

Citibank Canada

–Long term Issuer Default Rating (IDR) at ‘AA+’;

–Long-term deposits at ‘AA+’.

Citigroup Capital III, IV, V, VI, VII, VIII, IX, X, XIV, XV, XVI, XVII

–Preferred at ‘AA’.

Adam Capital Trust II, III, Adam Statutory Trust I-V

–Preferred at ‘AA’.

Commercial Credit Company

–Senior unsecured at ‘AA+’.

Associates Corporation of North America

–Senior unsecured at ‘AA+’;

–Subordinated at ‘AA’.

Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, http://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. The issuer did not participate in the rating process other than through the medium of its public disclosure.
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