Citigroup Inc. (Citi) will continue to support its international franchise in the event of need given the critical value of international operations to Citi’s financial and strategic future, according to Fitch Ratings, which has affirmed the Support ratings of its various international subsidiaries at ‘1’ (except in cases where support ratings are capped by country ceiling considerations).
Conversely, Fitch has also downgraded the long- and short-term issuer Default Ratings (IDRs) of some of these subsidiaries (to align long-term IDRs globally).
Under management’s latest strategy, Citi’s international banking franchise will remain a key part of its operations in terms of revenues, earnings and deposits. In 2008, revenues generated from Citi’s operations outside of North America were 76% of Citi’s total revenues.
This contribution reflects both the power of Citi’s international revenue streams (approximately $40 billion of non-North American revenues) as well as massive charges taken by U.S. operations. The international contribution to the bottom line was even greater, given large scale losses in domestic operations. In the prior year, non-North American operations generated 53% of the total revenue mix.
Citi’s international banking franchise is an integral part of Citi’s latest core/non-core strategy. This strategy was unveiled in mid-January 2009 after Citi received two capital injections from the U.S. government. Core operations include: a global institutional bank, Citi’s branded credit card business as well as regional consumer and commercial banking franchises.
International banking units such as Banamex, Bank Handlowy, Citibank Korea and Citibank Taiwan, among others, are being retained as part of the core regional banking operations. Citi injected US$800 million of capital into Citibank Korea in late December 2008 while reiterating Citibank Korea’s position as a key strategic subsidiary of Citigroup.
Core operations are not expected to be sold at least in the foreseeable future. Consequently, Fitch is not factoring event risk of any potential sale into the current ratings of core international operations. Rated non-core operations include Nikko Cordial Securities, a major brokerage firm in Japan.
Fitch has downgraded the long-term IDR of Nikko Cordial to ‘A’ as part of the alignment of ratings of international subsidiaries globally. Fitch has also placed the rating on Rating Watch Evolving given the classification of Nikko as a non-core operation.
The Outlook for Banamex’s long-term IDR remains Negative due to the Negative Outlook for Mexico’s sovereign rating. Banamex’s Individual Rating reflects its ample loss absorbing capability, robust franchise, sound liquidity and strong capital. Please see Fitch’s upcoming credit analysis report on Banamex for details.
Fitch has taken rating action on the following Citi international subsidiaries listed below:
Banco Nacional de Mexico (Banamex)
–Support affirmed at ‘1’;
–Long-term foreign and local currency IDRs affirmed at ‘A’; Outlook Negative;
–Short-term foreign and local currency IDRs affirmed at ‘F1’;
–Individual affirmed at ‘B/C’.
Citibank Korea Inc.
–Support affirmed at ‘1’;
–Long-term IDR downgraded to ‘A’ from ‘A+’; Outlook Stable;
–Short-term IDR downgraded to ‘F1’ from ‘F1+’;
–Subordinated debt downgraded to ‘A-‘ from ‘A’.
Citibank Taiwan Limited
–Support affirmed at ‘1’;
–Long-term IDR downgraded to ‘A’ from ‘A+’; Outlook Stable;
–Short-term IDR downgraded to ‘F1’ from ‘F1+’.
Bank Handlowy w Warszawie
–Support affirmed at ‘1’.
Nikko Citi Holdings
–Support affirmed at ‘1’;
–Long-term IDR downgraded to ‘A’ from ‘A+’ and placed on Rating Watch Evolving;
–Long-term Local Currency IDR downgraded to ‘A’ from ‘A+’ and placed on Rating Watch Evolving;
–Short-term IDR downgraded to ‘F1’ from ‘F1+’ and placed on Rating Watch Evolving;
–Short-term Local Currency IDR downgraded to ‘F1’ from ‘F1+’ and placed on Rating Watch Evolving.
Nikko Cordial Securities Inc.
–Support affirmed at ‘1’;
–Long-term IDR downgraded to ‘A’ from ‘A+’ and placed on Rating Watch Evolving;
–Long-term Local Currency IDR downgraded to ‘A’ from ‘A+’ and placed on Rating Watch Evolving;
–Short-term IDR downgraded to ‘F1’ from ‘F1+’ and placed on Rating Watch Evolving;
–Short-term Local Currency IDR downgraded to ‘F1’ from ‘F1+’ and placed on Rating Watch Evolving.
L.D.