Fitch: Government Action Provides Stability for Citi; Affirms 'A+/F1+' IDRs; Downgrades Pfd

NEW YORK--(BUSINESS WIRE)--The plan announced this morning by Citigroup Inc. (Citi), and the U.S. government's participation in it, should provide needed stability and support to Citigroup, according to Fitch Ratings, which has affirmed Citi's long- and short-term Issuer Default Ratings (IDRs) at 'A+' and 'F1+' respectively. The Rating Outlook for the long-term IDR remains Stable.

The 'A+/F1+' affirmation reflects the magnitude of continued support measures from the U.S. government due to Citi's systemic importance. For this reason Fitch has affirmed its Support rating for Citi at '1.'

However, on a standalone basis, Citi continues to be exposed to deteriorating macro-economic conditions and significant balance sheet stress. Greater relative credit risk and Citi's heavy reliance on continued U.S. government support measures have prompted Fitch to downgrade Citi's Individual rating to 'E' from 'C/D'.

In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's individual ratings and the prospect of external support is reflected in Fitch's support ratings. Collectively these ratings drive Fitch's long- and short-term IDRs.

In addition, the suspension of preferred dividends warranted a downgrade of Citi's preferred stock rating to 'C' from 'BB'. Fitch has also removed the preferred stock and Individual ratings from Rating Watch Negative.

The ratings on the long- and short-term debt issued by Citi under the FDIC's guarantee program are also affirmed at 'AAA' and 'F1+.'

A complete list of Citi entities affected by the rating changes follows the end of the press release.

Under the plan (announced this morning), Citi offers to exchange common stock for up to $27.5 billion of its existing capital securities, including preferred and trust preferred, at a conversion price of $3.25 per common share. The U.S. government will match this exchange up to a maximum of $25 billion face value of its TARP preferred. The non-U.S. government exchange will accommodate all preferred stock holders first. Depending on the level of participation by preferred holders, holders of trust preferred securities may also be able to participate.

The U.S. government's willingness to convert a substantial amount of TARP preferred securities to common stock is instrumental towards boosting Citi's weak level of tangible common equity. Assuming substantial conversion takes place, the U.S. government will become by far the largest single shareholder in Citi with a stake in the range of 40%. If successful, this plan will significantly reduce dividend costs on preferred instruments. Investors in preferred stock issued by Citigroup Inc. are being encouraged to participate through the suspension of preferred dividends. Post conversion, remaining U.S. government TARP capital will be exchanged for new trust preferred securities.

Other support measures by the U.S. government have included two rounds of TARP capital injections, a loss cap guarantee on a $300 billion pool of assets, liquidity support and considerable funding support through the FDIC's TLGP program.

Fitch believes Citi's asset quality will continue to deteriorate considerably in 2009. Global economic difficulties will cause the inflow of new problems ranging from U.S. and international consumer exposures to large corporate exposures. Consequently, loan loss provisions and chargeoffs will escalate from already high levels in 2008.

While trust preferred holders will not face immediate suspension of payments, Fitch believes the potential for future deferral is increasing, which warranted Fitch's downgrade of Citi's trust preferred stock to 'B' from 'BB'. Removing these ratings from Rating Watch Negative will hinge on the success of this plan as well as a return to significant operating profitability on a sustained basis.

Fitch has taken the following rating actions on Citi and subsidiaries:

Citigroup Inc.

--Long-term IDR affirmed at 'A+'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Senior unsecured affirmed at 'A+';

--Subordinated affirmed at 'A';

--Support affirmed at '1';

--Support Floor affirmed at 'A+';

--Individual downgraded to 'E' from 'C/D' and removed from Rating Watch Negative;

--Preferred to 'C' from 'BB' and removed from Rating Watch Negative;

--Long-term FDIC guaranteed debt affirmed at 'AAA';

--Short-term FDIC guaranteed debt affirmed at 'F1+'.

Citibank, N.A.

--Long-term IDR affirmed at 'A+'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Long term deposits affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Support affirmed at '1';

--Support Floor affirmed at 'A+';

--Individual downgraded to 'E' from 'C/D' and removed from Rating Watch Negative.

Citibank (South Dakota)

--Long-term IDR affirmed at 'A+'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Long-term deposits affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Support affirmed at '1';

--Support Floor affirmed at 'A+';

--Individual downgraded to 'E' from 'C/D'; removed from Rating Watch Negative.

Citibank Banamex USA

--Long-term IDR affirmed at 'A+'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Subordinated affirmed at 'A';

--Long-term deposits affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Support affirmed at '1';

--Support Floor affirmed at 'A+';

--Individual downgraded to 'E' from 'C/D' and removed from Rating Watch Negative.

Citigroup Capital III, IV, V, VI, VII, VIII, IX, X, XIV, XV, XVI, XVII, XVIII, XIX, XX, XXI, XXIX, XXX, XXXI, and XXXII

--Trust preferred downgraded to 'B' from 'BB'; remains on Rating Watch Negative.

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

--Preferred downgraded to 'B' from 'BB'; remains on Rating Watch Negative.

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.