(The following statement was released by the rating agency)CHICAGO, March 26 (Fitch) Fitch Ratings has affirmed Citigroup, Inc's (Citi) long-term Issuer Default Rating (IDR) at 'A' and upgraded its Viability Rating (VR) to 'a' from 'a-'. The Rating Outlook is Stable. The VR upgrade is supported by an improving risk profile, very solid capital and liquidity profiles, and enhanced risk management framework. This upgrade represents a forward-looking view of Citi's earnings profile, and that its performance will improve modestly and converge to peer averages over the near term. With the VR upgrade, Citi's IDR no longer incorporates any uplift from sovereign support, as the long-term IDR is now underpinned by the standalone rating. A full list of rating actions is at the end of this rating action commentary.The rating actions have been taken in conjunction with a review of support for banks globally and also as part of a periodic review of the Global Trading and Universal Banks (GTUBs), which comprise 12 large and globally active banking groups. Fitch's outlook for the sector is stable on balance. Earnings pressure in securities businesses, particularly in fixed income, and continued conduct and regulatory risks present in the GTUBs are offset by stronger balance sheets as capitalization and liquidity remain sound. Fitch forecasts stronger GDP growth in most economies, which should contribute to a more balanced economic environment, which, however, is likely to remain challenging in 2014.Today's rating actions assume that Citi will perform adequately under the CCAR stress test, though Fitch has no visibility into any potential qualitative rejections for Citi, or any of the other 29 banks subject to regulatory stress testing. Although a qualitative rejection of a capital plan request under CCAR would be viewed negatively, it is not expected to have any rating implications for Citi.KEY RATING DRIVERS - IDRS, VRs AND SENIOR DEBTThe company's risk profile continues to improve, reflecting its key strengths: diverse revenue mix, conservative liquidity management, improved capital position, and enhanced risk management framework. Citi has also made modest progress in improving its earnings profile despite a challenging economic and operating environment. Fitch views Citi's strategy as appropriate in light of the evolving regulatory and economic environment. Fitch's rating actions incorporate a forward-looking view of Citi's ability to execute on that strategy, including its ability to successfully meet financial targets, over the near- to intermediate-term. Citi's ratings are underpinned by the strength of its franchise and diversity of revenues. The diversity in geography, business lines, and product offerings is viewed favourably from a credit risk perspective, despite potential revenue headwinds presented by an emerging markets slowdown. Fitch views any credit risk related to an emerging markets slowdown as relatively manageable for the company, given the modest direct consumer and corporate loan exposure to those countries currently under stress. Citi's franchise is also supported by its highly profitable transaction services business line, and solid presence in fixed income. Citi's VR is supported by very strong liquidity and capital levels. The company's liquidity profile is much improved with a large percentage of high quality liquid assets (HQLA) as a percentage of assets at YE2013 (23%). Citi's Fitch Core Capital as a percentage of risk-weighted assets was 12.8% at YE2013, roughly in line with average for the other GTUBs, though on a tangible basis, the FCC ratio was the highest of all the GTUBs. Fitch notes that Citi also compares favourably to many of its peers with regard to compliance with various pending regulatory rules, including compliance with fully phased-in requirements for Basel III capital ratios, the U.S.-based Supplemental Leverage Ratio at both Holding Company and Bank-level, and U.S.-proposed LCR rule. Its compliance is well ahead of phased-in timelines for these pending rules, and as such, its balance sheet and earnings profile have likely also already incorporated the impacts of all these rules. Citi's financial performance continues to improve, and is converging to peer averages. While there was some slowdown in operating performance in 2H13, Fitch expects that over the near- to intermediate-term, Citi will be able to execute on its strategic initiatives, and its earnings performance will fall in line with Fitch's expectations. The earnings drag from Citi Holdings will lessen, and Fitch expects Citi Holdings will break-even during 2015 reflecting the absence of mortgage repurchase costs, and a decline in legal charges. Citi made significant strides in 2013 in addressing some of its material mortgage-related issues. However, Citi is still exposed to potential litigation risk stemming from its role in setting interbank offered rates, foreign currency trading, credit default swaps and private-label securitizations. As such, Citi is still exposed to elevated legal risk and associated costs. However, Fitch's ratings incorporate an expectation that legal charges will remain manageable for Citi's capital profile. Legal charges to date have been materially less than for BAC and JPM, though totaled over $3bn in 2013 or 15% of pre-tax income. Fitch notes that visibility into future legal-related costs is very limited.Citi's VR upgrade also reflects continuing improvements in asset quality. Nonaccrual loans are down 22% from a year ago, and reserve levels remain good. Of the U.S.-based GTUBs, Citi continues to remain the most conservative in releasing reserves, and has the highest reserves to loans at approximately 3% at YE2013, considered appropriate given its significant exposure to credit card loans, exposure to Latin America, and a still seemingly fragile recovery in the U.S. housing market. RATING SENSITIVITIES - IDRS, VRs AND SENIOR DEBTFitch sees limited near-term upward rating potential beyond today's rating action given a now high relative and absolute rating. In terms of downgrade sensitivities, Citi is more vulnerable to a downturn in the emerging markets than its peers. Citi is more exposed in the event of a slowdown in key emerging markets, including Mexico, Brazil, China, and India, with revenue likely more at risk than asset quality.Downward pressure on the VR would result from a material loss, reduction in capital ratios or significant deterioration in liquidity levels. It is the strength of the liquidity and capital profiles that underpin Citi's rating. Fitch's ratings action incorporates an expectation that Citi will manage its capital and liquidity profiles relatively conservatively, and although capital distributions will likely increase over the near term, they will still be governed by the regulatory stress testing profile and as such, remain reasonable. Fitch also expects a relatively conservative capital profile is appropriate in light of economic uncertainty, potential volatility in AOCI, and the low visibility into future legal risks. Any unforeseen outsized fines, settlements or other charges could also have adverse rating implications for Citi. Litigation charges have weighed down earnings, and will likely continue to impact earnings over the near term, despite the fact that Citi's legal charges to date have been lower than some of its peers. Fitch notes there is very little visibility into legal-related risk for Citi or the industry, though Fitch's ratings action expects litigation costs will remain manageable relative to capital. With such expansive operations around the globe, Citi is also exposed to elevated levels of operational risk. Fitch views Citi's risk management infrastructure favourably, with significant enhancements made since the financial crisis. While no institution is immune to a material operational loss, Citi's experience to date has been favourable to some of its peers. Fitch notes that the recent disclosure regarding fraud discovered in its Mexican subsidiary, prompting Citi to revise downward 2013 earnings by approximately $235m after-tax, represents failure in its risk management function. However, it is not considered a ratings driver as it was very manageable in the context of capital, and disclosed to be an isolated event. Fitch expects a certain level of operational loss events can occur in any institution given the complexity of products and services banking institutions offer, but these operational events do not represent downward rating events in themselves. However, Citi's ratings could be vulnerable to a large operational loss that depletes capital in a material way, or if an operational event calls into question Fitch's assessment of Citi's risk management function and its ability to accurately identify, monitor, and mitigate risks throughout the organization. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR Citi's Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's expectation that there remains an extremely high probability of support from the U.S. government (AAA/Rating Outlook Stable) if required. This expectation reflects the U.S.'s extremely high ability to support its banks especially given its strong financial flexibility, though propensity is becoming less certain. Specific to Citi, our view of support likelihood is based mostly on its systemic importance in the U.S., its global interconnectedness given its size and operations in global capital markets, significant deposit market share and its position as a key provider of financial services to the U.S. economy. Citi's IDRs and senior debt ratings do not benefit from support because Citi's VR is now equal to its SRF.However, in Fitch's view, there is a clear intention to reduce support for G-SIFIs in the U.S., as demonstrated by the Dodd Frank Act (DFA) and progress regulators have made on implementing the Orderly Liquidation Authority (OLA). The FDIC has proposed its single point of entry (SPOE) strategy and further initiatives are demonstrating the U.S. government's progress to eliminate state support for U.S. banks going forward, which increases the likelihood of senior debt losses if its banks run afoul of solvency assessments.RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR The SR and SRF are sensitive to progress made in finalizing the SPOE strategy and any additional regulatory initiatives that may be imposed on the G-SIFIs, including debt thresholds at the holding company. Fitch's assessment of continuing support for U.S. G-SIFIs has to some extent relied upon the feasibility of OLA implementation rather than its enactment into law (when DFA passed). Hurdles that remain include the resolution of how cross-border derivative acceleration/termination provisions are handled and that there is sufficient contingent capital at the holding company to recapitalize without requiring government assistance. Fitch expects that the SPOE strategy and regulatory action to ensure sufficient contingent capital will be finalized in the near term, but regardless of its finalization Fitch believes that sufficient regulatory progress continues to be made over the ratings time horizon. Therefore, Fitch expects to revise Citi's SR to '5' and its SRF to 'No Floor' within the next one to two years, likely to be some point in late 2014 or in 1H15.A revision of the SRF to 'No Floor' would mean no change to Citi's Long-term IDR and debt ratings because Citi's viability rating is now equal to its SRF.KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIESSubordinated debt and other hybrid capital issued by Citi and by various issuing vehicles are all notched down from Citi's or its bank subsidiaries' VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles. These ratings have thus been upgraded due to the upgrade of the company's VR.RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIESThe ratings of subordinated debt and other hybrid capital issued by Citi and its subsidiaries are primarily sensitive to any change in Citi's VR. KEY RATING DRIVERS - HOLDING COMPANYCiti'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. RATING SENSITIVITIES - HOLDING COMPANYShould 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 COMPANYThe 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 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.KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGSCiti's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default. However, Citi's uninsured deposits outside of the U.S. do not benefit from rating uplift because they do not typically benefit from the U.S. depositor preference unless the deposit is expressly payable at an office of the bank in the United States. Since Fitch cannot determine which foreign branch deposits may be dually payable, they do not get the rating uplift.KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGSThe ratings of long- and short-term deposits issued by Citi and its subsidiaries are primarily sensitive to any change in Citi's long- and short-term IDRs. RATING SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANY As the IDRs and VRs of the subsidiaries are equalised with those of Citi to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in Citi's IDRs. To the extent that one of Citi's subsidiary or affiliated companies is not considered to be a core business, Fitch could also notch the subsidiary's rating from Citi's IDR.The rating actions are as follows: The following ratings were upgraded:Citigroup Inc.--Subordinated to 'A-' from 'BBB+'; --Preferred to 'BB+' from 'BB';--Viability Rating to 'a' from 'a-'. Citibank, N.A.--Viability Rating to 'a' from 'a-';Citibank Banamex USA--Subordinated to 'A-' from 'BBB+';--Viability Rating to 'a' from 'a-'.CitiFinancial Europe plc--Subordinated to 'A-' from 'BBB+'. Canada Square Operations Limited (formerly Egg Banking plc)--Subordinated to 'A-' from 'BBB+'. Citigroup Capital III, IX, XIII, XVII, XVIII--Trust preferred to 'BBB-' from 'BB+'. Adam Capital Trust III, Adam Statutory Trust III, IV, V--Trust preferred to 'BBB-' from 'BB+'.The following ratings were affirmed: Citigroup Inc.--Long-term IDR at 'A' with a Stable Outlook; --Senior unsecured at 'A';--Short-term IDR at 'F1';--Support at '1';--Support floor 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'.Citibank Banamex USA--Long-term IDR at 'A'; --Long-term deposits at 'A+';--Short-term IDR at 'F1';--Short-term deposits at 'F1';--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';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';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'. Fitch will hold a teleconference to discuss sovereign support for banks and give an update on rating paths on Friday, March 28 at 15:00 GMT.Callers must register in advance using the link below and are requested to dial in early:http://event.onlineseminarsolutions.com/r.htm?e=773507&s=1&k=E99B5BCE23C11883F75 DA40C4B1FED21Contact: Primary Analyst Julie SolarSenior Director+1-312-368-5472Fitch Ratings, Inc., 70 W. Madison, St., Chicago, IL 60602Secondary AnalystMeghan NeenanSenior Director+1-212-908-0121Committee ChairpersonGordon ScottManaging Director+44 20 3530 1075Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com.Additional information is available atwww.fitchratings.com. In addition to the source(s) of information identified in Fitch's Master Criteria, these actions were additionally informed by information provided by the companies. A
pplicable Criteria and Related Research:--Global Financial Institutions Rating Criteria (Jan. 31, 2014)--Assessing and Rating Bank Subordinated and Hybrid Securities (Jan. 31, 2014)--Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012)--'The Evolving Dynamics of Support for Banks' (Sept. 11, 2013)--'Bank Support: Likely Rating Paths' (Sept. 11, 2013)-- Sovereign Support for Banks: Update On Position Outlined In 3Q13 (December 2013)--2014 Outlook: U.S. Banks (Nov. 21, 2013)--Global Trading and Universal Banks - Periodic Review (Dec. 12, 2013)--Fitch Fundamentals Index - U.S.; Index Trend Analysis 4Q13 (Jan. 15, 2013)--U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) (Jan. 27, 2014)Applicable Criteria and Related Research: U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain)http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732295 Fitch Fundamentals Index - U.S.; Index Trend Analysis 3Q13http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718948 Global Trading and Universal Banks - Periodic Reviewhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726150 2014 Outlook: U.S. Bankshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723989 Sovereign Support For Banks: Update on Position Outlined in 3Q13http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726698 Bank Support: Likely Rating Pathshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715001 The Evolving Dynamics of Support for Bankshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715000 Rating FI Subsidiaries and Holding Companieshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209 Assessing and Rating Bank Subordinated and Hybrid Securities Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137 Global Financial Institutions Rating Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397 Additional Disclosure Solicitation Statushttp://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825150 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
