Citibank 2014 Annual Report Download - page 117

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Credit Ratings
Citigroup’s funding and liquidity, its funding capacity, ability to access
capital markets and other sources of funds, the cost of these funds, and its
ability to maintain certain deposits are partially dependent on its credit
ratings. The table below sets forth the ratings for Citigroup and Citibank, N.A.
as of December 31, 2014. While not included in the table below, Citigroup
Global Markets Inc. (CGMI) is rated A/A-1 by Standard & Poor’s and A/F1 by
Fitch as of December 31, 2014.
Debt Ratings as of December 31, 2014
Citigroup Inc. Citibank, N.A.
Senior
debt
Commercial
paper Outlook
Long-
term
Short-
term Outlook
Fitch Ratings (Fitch) A F1 Stable A F1 Stable
Moody’s Investors Service (Moody’s) Baa2 P-2 Stable A2 P-1 Stable
Standard & Poor’s (S&P) A- A-2 Negative A A-1 Stable
Recent Credit Rating Developments
On December 17, 2014, Fitch issued a bank “criteria exposure draft.” The
document consolidates all bank rating criteria into one report and refines
certain aspects of the criteria, including clarification as to when the agency
might rate an operating company’s long-term rating above its unsupported
rating due to the protection offered to senior creditors by loss absorbing
junior instruments. Since March 2014, Fitch has been contemplating the
introduction of a ratings differential between U.S. bank holding companies
and operating companies due to the evolving regulatory landscape.
Currently, Fitch equalizes holding company and operating company ratings,
reflecting what it views as the close correlation between default probabilities.
On November 24, 2014, S&P issued a proposal to add a component to its
bank rating methodology to address how a bank’s long-term rating may be
higher than the bank’s unsupported rating due to “additional loss absorbing
capacity” (ALAC). The ALAC proposal considers that loss absorption by
instruments subject to bail-in could partly or fully replace a government
bail-out and could reduce the likelihood of default on an operating
company’s senior unsecured debt obligations. S&P continues to evaluate
government support into the ratings of systemically important U.S. bank
holding companies.
On September 9, 2014, Moody’s also released for comment a new bank
rating methodology. The new methodology proposed a streamlined baseline
credit assessment (with removal of the bank financial strength rating) and
introduced a “loss given failure” assessment into the ratings. The comment
period has closed and resolution is expected in early 2015.
Potential Impacts of Ratings Downgrades
Ratings downgrades by Moody’s, Fitch or S&P could negatively impact
Citigroup’s and/or Citibank, N.A.’s funding and liquidity due to reduced
funding capacity, including derivatives triggers, which could take the form of
cash obligations and collateral requirements.
The following information is provided for the purpose of analyzing the
potential funding and liquidity impact to Citigroup and Citibank, N.A. of
a hypothetical, simultaneous ratings downgrade across all three major
rating agencies. This analysis is subject to certain estimates, estimation
methodologies, and judgments and uncertainties. Uncertainties include
potential ratings limitations that certain entities may have with respect
to permissible counterparties, as well as general subjective counterparty
behavior. For example, certain corporate customers and trading
counterparties could re-evaluate their business relationships with Citi
and limit the trading of certain contracts or market instruments with Citi.
Changes in counterparty behavior could impact Citi’s funding and liquidity,
as well as the results of operations of certain of its businesses. The actual
impact to Citigroup or Citibank, N.A. is unpredictable and may differ
materially from the potential funding and liquidity impacts described below.
For additional information on the impact of credit rating changes on Citi
and its applicable subsidiaries, see “Risk Factors—Liquidity Risks” above.