Moody's Goes For Trifecta, Downgrades Citi Short-Term Rating Of Citi From Prime-1 To Prime-2

Tyler Durden's picture

There goes Citi...

Moody's Investors Service confirmed the A3 long-term rating of Citigroup and the A1 long-term and Prime-1 short-term ratings of Citibank N.A. At the same time, Moody's downgraded the short-term rating of Citigroup (the holding company) to Prime-2 from Prime-1. The actions conclude a review for possible downgrade announced on June 2, 2011. The outlook on the long-term senior ratings remains negative.
The confirmations reflect two offsetting factors: a decrease in the probability that the US government would support the bank, if needed, and an improvement in the bank's stand-alone credit profile reflected in an increase in Citibank N.A.'s unsupported baseline credit assessment (BCA) to Baa1 from Baa2.The downgrade of the short-term rating of Citigroup results from the reduced assumption of systemic support. Typically A3-rated companies are rated Prime-2 for their short-term obligations.
Citigroup's Prime-1 had been an exception to this general practice, based on the view that short-term creditors benefited the most from the unusually high level of government support provided to banks during the financial crisis. The downgrade to Prime-2 is not a reflection of Citigroup's liquidity profile, which strengthened significantly in the past two years and is robust.
The ratings affected are as follows:
Citigroup Inc.: Moody's confirmed the A3 long-term rating of Citigroup Inc. but downgraded its short-term rating to Prime-2 from Prime-1. The holding company's long-term senior debt ratings now incorporate two notches of uplift due to systemic support, down from three notches previously.
Citibank N.A.: Moody's confirmed or affirmed all of the bank's supported ratings (A1 for deposits and senior debt and short-term at Prime-1). The bank's deposit and senior debt ratings now incorporate three notches of uplift due to systemic support, down from four notches previously. At the same time, the unsupported bank financial strength rating (BFSR) of
C- was affirmed, but the bank's corresponding unsupported BCA was raised to Baa1 from Baa2.
Hybrid-equity securities issued by or guaranteed by Citigroup Inc., which do not incorporate any government support, were upgraded by one notch reflecting the one notch improvement in the bank's unsupported BCA.
Junior subordinated securities were upgraded to Baa3 (hyb) from Ba1 (hyb).
Moody's will publish separate press releases on other institutions covered by the review announced on June 2, 2011.
The reduction in support assumptions resulted in Moody's lowering the short-term rating of Citigroup Inc. to Prime-2 from Prime-1, even though Citigroup's long-term rating was confirmed at A3. Issuers that are rated
A3 are normally also rated Prime-2 by Moody's. Citigroup's Prime-1 was an exception based on the unusually high level of government support provided during the crisis to important financial institutions to the benefit of short-term creditors. With the return of government support to pre-crisis levels, the short-term rating is now positioned at the more common Prime-2 level relative to the A3.
Moody's confirmed the long-term ratings on Citigroup and Citibank at current levels because the rating impact of a fall in Moody's government support assumptions was offset by an improvement in Citibank N.A.'s intrinsic credit strength as reflected in the increase in its stand-alone BCA to Baa1 from Baa2.
The rating uplift from Moody's government support assumptions for Citibank N.A.'s deposits, senior-debt, and senior-subordinated-debt ratings is now three notches, as opposed to the previous four. This represents a pre-crisis level of support.
Moody's continues to see the probability of support for highly interconnected, systemically important institutions in the United States to be very high, although that probability is lower than it was during the financial crisis. During the crisis, the risk of contagion to the US and global financial system from a major bank failure was viewed as too great to allow such a failure to occur -- a view borne out in the aftermath of the Lehman failure. This led the government to extend an unusual level of support to weakened financial institutions and Moody's to incorporate the expectations of such support in its ratings. Now, having moved beyond the depths of the crisis, Moody's believes there is an increased possibility that the government might allow a large financial institution to fail, taking the view that contagion could be limited.
Moody's decision to assign a negative rating outlook reflects the possibility it may further reduce its systemic support assumptions in the future as a consequence of the process set in motion by the enactment of the Dodd-Frank Act. Under the rules recently finalized by the FDIC, the orderly liquidation authority included in Dodd-Frank demonstrates a clear intent to impose losses on bondholders in the event that a systemically-important banking group (such as Citigroup) was nearing failure. If fully implemented, the provisions in Dodd-Frank could further lower systemic risk by reducing interconnectedness among large institutions and could further strengthen regulators' abilities to resolve such firms.
However, the final form of several critical components of Dodd-Frank intended to reduce such interconnectedness, such as resolution plans or changes to the over-the-counter derivatives market, are still pending.
There is also no global process yet in place whereby regulators could resolve a global financial company such as Citigroup in an orderly fashion. As a result, Moody's believes that it would be very difficult for the US government to utilize the orderly liquidation authority to resolve a systemically important bank without a disruption of the marketplace and the broader economy.
The increase in Citibank N.A.'s unsupported BCA to Baa1 from Baa2 reflects improvement in Citigroup's risk profile and progress in installing better risk management. The improvement in the risk profile is a product of 1) much higher capital, which was initiated by the government-led bailout in the third quarter of 2009, 2) new management effectively reducing a sizable inventory of problematic assets, during a time when the government's ownership was reduced to zero, 3) the installation of a risk-management framework that is reducing risk concentrations, and 4) the improvement in the liquidity profile of both the bank and non-bank entities. The outlook on the BFSR is stable.
The principal methodologies used in rating were "Bank Financial Strength
Ratings: Global Methodology" published in February 2007, "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" published in March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt" published in November 2009.
Please see the Credit Policy page on for a copy of these methodologies.
Citigroup Inc. is headquartered in New York City. Its reported assets were $1,957 billion at June 30, 2011.

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CaptFufflePants's picture

CITI is up on the news go figure.

SGS's picture

Long term debt affirmed SOLID



Ahmeexnal's picture

Moody's goes TRIFECAL.


TheFourthStooge-ing's picture

"Herro, wercome to Shitty Bank, tay your order prease?"


nope-1004's picture

I figured these would come around the time of a QE announcement.  It will make more sense tomorrow, but for now these downgrades are well timed, dontchya think?

I bet Benocide eludes to these downgrades as further rational.


jdelano's picture

I think the opposite.  This is a retaliation move, a middle finger driven into the wound that OT will open in the banks' long term prospects.  Moody's cleary sending an FU to Buffet/Obama. 

NotApplicable's picture

Retaliation infers opposition. Given this is the political economy we're talking about, I no more believe in the existence of opposition there than I do with professional wrestling.

It's all meant to convey a facade of integrity, but it isn't that hard to see through it. This is true even IF, as you say, Moody's is sending an FU to Obama. It's just another page in the script, and Moody's gets to play bad cop, to balance out Bernanke's good cop routine.

Otherwise, reality might appear unbalanced and incoherent.

NotApplicable's picture

Absolutely. As I mentioned in the last thread, it's all about manufacturing consent to create a facade of a mandate for action.

Because, as we all know... wait for it...


Da55id's picture

Doesn't Berkshire own a big chunk of Moody's? Announce bad news that will immediately be eclipsed by later news and gets it out of the way. Nice play. Play nice...

jdelano's picture

Warren Buffet had this to say on Moody’s:

……the company “eagerly sought stupid assumptions that enabled them to do clever mathematics.” As to why he didn’t exert his influence, he said: “I don’t think I’ve ever made a call to Moody’s. We don’t tell Burlington Northern what safety procedures to put in or AmEx who they should lend to. When we own stock, we are not there to try and change people……

covert's picture

all corp banks are doomed to fail, it's the nature of banking and govt doesn't help. the fundamentials always prevail.


LongBalls's picture

Bank stocks are going to get a steroid shot today. They are going to be forced to take the deposits at the Fed. and lend it/invest it in pursuit of a larger yield. The market will view this as bullish.

Shocker's picture

The fecta is going to continue on. Without people spending money getting loans for cars/houses... Banks are going to continue to be under pressure. Really no way around that


depression's picture

add to this the flatening yield curve

a one - two punch to the gut

Larry Darrell's picture

Don't forget the Super High Five on the last race of the day.  It has a carryover, kinda like the debt the government continually has to roll.

junkyardjack's picture

The market appears to be getting more and more excited for QE3 with each announcement.  

stant's picture

open season on buffet and banks

IQ 145's picture

Look at POT on the NYSE it's going to rally 15%+ in the next couple of months.

DogSlime's picture

I love the smell of a triple bank downgrade in the morning - smells like.... DEEEP SHIIITTTTT!!!

LongBalls's picture

A.K.A..... Bankers to Moody's, "Hey guys we really need this cash" how can you help us slip you some dough?

No One's picture

So, when is Moody's going to man up and downgrade America?

lolmao500's picture

Next : downgrading America, France and the UK.

Mr Lennon Hendrix's picture

Sacrificing goat after goat on the alter of the Temple.  Ah yes, the equinox.  And if anyone does not think there is a method to the pagan Illuminatti's madness, you may wish to read from the real history books. 

ReallySparky's picture

Mr. Hendrix there will be none of that conspiracy stuff around here, there is no audience for it.   /sarcasm

Mr Lennon Hendrix's picture

Oh right.  Bernanke is a schoolboy and is just like all other Economic Professors [cough cough].  He doesn't pander to the wants and needs of the elite [cough].  He is just using the book he wrote because he believes in it, not because he is a shareholder for the Bank of International Settlements [cough.....cough!].

12ToothAssassin's picture

Autumnal Equinox is on Friday, September 23, 2011

Mr Lennon Hendrix's picture

Yeah, yeah, I know, that is what my calender says too, but really, the calender is so messed up at this point that we don't really know what we are talking about.  We should have been using the moon calender for the last 2000 years if we had wanted to be accurate.  Man, now that I think about it, the Mayan calender may have read completely differently, huh?


ReallySparky's picture

Does anyone else here find it suspisious that these rating changes are coming out prior to the FOMC?  I say the Bernake suprises everyone.

DropOutEconomist's picture

Buffett is a large shareholder in Moody's.

GeneMarchbanks's picture

WTF is going on at Moody's? Did Zandi get fired? That guy blows...

TradingJoe's picture

Too little time to make a difference now! These "downgrades" should have come a lot earlier, The Benster cannot react on these ones now, not good for his "reputation"! NO QE! Just some "tough talk" and that's it!

NotApplicable's picture

LOL, you really think he didn't know about them?

Remember, the reaction is the action.

Zymurguy's picture

No matter what happens with the downgrades or the the next QE, you can be assured the common man will be fecta'd.

tallen's picture

There's something about watching ShittyGroup's stock tank that makes me feel so warm inside

lolmao500's picture

Time for China to cut the swap lines to the US.

Lester's picture

Evidently todays news, domestic and foreign just goes to show that $16 Trillion in secret funding just won't go as far as it used to.

Buddy can you spare a couple Quadrillion?

azzhatter's picture

Dick Bove runs in to take another dump.