Moody's Downgrades Long-Term Ratings Of Citigroup

Moody's Investors Service lowered the senior debt ratings of Citigroup Inc. to A3 from A2, the senior subordinated debt to Baa1 from A3, the junior subordinated debt to Baa3 from A3 with a negative outlook (issued by various Citigroup Capital

By None

Moody’s Investors Service lowered the senior debt ratings of Citigroup Inc. to A3 from A2, the senior subordinated debt to Baa1 from A3, the junior subordinated debt to Baa3 from A3 with a negative outlook (issued by various Citigroup Capital Trust vehicles), and the preferred debt ratings to Ca from Baa3. The short-term rating at Citigroup Inc. was confirmed at Prime-1.

Citibank N.A.’s rating for deposits was lowered to A1 from Aa3, and its Prime-1 short-term rating was affirmed. The Citibank’s bank financial strength rating (BFSR) was confirmed at C- with a negative outlook, while its baseline credit assessment was lowered to Baa2 from Baa1.

All ratings have a stable outlook except for Citibank’s bank financial strength rating and Citigroup’s junior subordinated debt rating. These actions conclude a review that commenced on 18 December 2008.

These actions had no impact on the FDIC-guaranteed debt issued by Citigroup. That debt remains rated Aaa with a stable outlook.

The downgrade of the senior and subordinated ratings is driven by Moody’s expectation that, the current level of government support notwithstanding, Citigroup will emerge from the current economic crisis with a different mix of core businesses and a smaller scale, which could diminish its relative importance to the US banking system over the long run. The confirmation of the BFSR reflects the fact that the recapitalization announced today and the government’s Eligible Asset guarantee better position the company to face a number of near-term financial and operational pressures.

The multi-notch downgrade of the preferred stock rating incorporates the expected loss resulting from the deferral of dividends on these non-cumulative instruments, which Moody’s believe could last for several years.

The rating actions follow an announcement by Citigroup that it is embarking on a major capital initiative. Investors in Citigroup junior-subordinated (TRUP) securities and preferred stock will have the option to exchange their securities into Citigroup authorized common stock. In addition, the U.S. government will exchange up to $25 billion of its preferred securities into common stock on a one-to-one ratio based on the level of non-government participation in the exchange. The U.S. government will exchange its remaining preferred securities into a new trust preferred securities. Depending upon the participation rate in the exchange, holders in junior subordinated debt (TRUPS and ETRUPS) may also be eligible to participate.

Citigroup also announced that it will suspend dividends on its preferred securities and eliminate its remaining common dividend while it will continue to pay distributions on its junior-subordinated securities.

Citigroup believes that its tangible common equity could rise to as much as $81 billion as a result of the recapitalization.

For more details please visit www.moodys.com

D.C.

«