NEW YORK (MNI) – The following are excerpts from a statement issued
Wednesday by Moody’s:

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.

RATINGS RATIONALE

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.

** Market News International New York Newsroom: 212-669-6430 **

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