DBRS Confirms Citigroup Inc.’s Senior Debt rating at “A” with a Stable trend

DBRS, Inc. (DBRS) has today confirmed ratings of Citigroup Inc. (Citigroup, Citi or the Company), including its Issuer & Senior Debt rating of “A” and its Short-Term Instruments rating of R-1 (low). DBRS also confirmed the ratings of Citibank, N.A. (the Bank), including its Deposits & Senior Debt rating of A (high) and Short-Term Instruments rating of R-1 (middle). The trend on all ratings is Stable. At the same time, DBRS affirmed the Bank’s Intrinsic Assessment (IA) at A (high).

Supporting the IA, DBRS recognizes the strength of Citi’s extensive global franchise, allowing it a unique competitive advantage in serving multi-national corporate clients. Additionally, the Company generates solid earnings, with generally improving trends, despite the challenging operating environment. The IA also considers the Company’s successful repositioning, with non-core assets held in Citi Holdings now representing just 3% of total assets at year-end 2016. Given its relatively small size, and diminishing impact on results, Citi Holdings will no longer be reported separately. The IA also considers the heightened regulatory scrutiny and enhanced capital demands that come with being a large, complex globally systemically important bank (G-SIB). DBRS has also factored into its ratings Citi’s wide-ranging capital markets activities and emerging market exposures, which support the franchise value and enhance diversity of revenues, but elevate risk levels. With ICG trading assets comprising approximately 13% of total balance sheet, the Company has good diversification outside of assets that are typically marked-to-market, but this does expose Citi to potential large market movements and market disruptions.

The Stable trend reflects Citi’s strong credit fundamentals with good asset quality, strong liquidity, and robust capitalization. DBRS views Citigroup as well-positioned to continue to manage through the current challenging operating environment, including rising, but still low, interest rates, uncertainties that are impacting client activity levels, and increased regulatory burdens.

Citigroup’s franchise is underpinned by a broad array of strong core businesses through which it meets the wide-ranging needs of retail, business, corporate and institutional customers under a global brand with an on-the-ground presence in 97 markets. These businesses include successful retail banking and credit card businesses in many countries around the world, as well as extensive capital markets businesses and its wide-ranging wholesale banking services. Moreover, the Company is well-positioned to benefit from the expanding role of emerging market economies in the global economy. Although emerging markets are more volatile, DBRS sees emerging markets to be a key potential driver of growth for Citi over the long-term. In the near-term, however, Citi must continue to manage these businesses in an uncertain operating environment. As the most globally diversified U.S. banking organization, DBRS sees Citigroup as one of only a few banking organizations worldwide with the brand and infrastructure to provide such a broad range of banking services globally.

Citigroup’s top line has proven resilient despite the challenging operating environment, with net revenues averaging $75 billion annually since 2011. In 2016, Citi reported net income of $15 billion on net revenues of $70 billion; in 2015, the Company reported net income of $17 billion on net revenues of $76 billion. DBRS recognizes that 2016 was a challenging year to continue the momentum of improving results. Looking ahead, revenue tailwinds include higher interest rates, increased client activity, the continued rundown of Citi Holdings, and the utilization of its DTA. Efficiency gains are contributing to bottom line returns, with a cost/income ratio of 59% in 2016, as expense discipline, a simplified organization, and lower legal and repositioning charges have contributed to expense reductions.

DBRS views Citigroup’s funding and liquidity as strong, supported by its $929 billion global deposit base. Due to the Company’s business mix and funding needs, wholesale funding reliance is sizable and well-managed. From a regulatory perspective, Citi’s TLAC shortfall has been reduced to $2 billion, down from an estimated $10 billion last year, and the Company’s resolution plan submission resulted in no deficiencies. Citi estimates its NSFR to be in excess of 100%. Reflective of its high level of liquidity, the Company had $404 billion of High Quality Liquid Assets (HQLA) at year-end and a Liquidity Coverage Ratio (LCR) of 121%.

Citi’s capital ratios have reflected continued improvement and remain among the highest among large global banks. The Company’s fully-phased in Basel III Common Equity Tier 1 (CET1) ratio was a strong 12.5% at year-end, a sizable capital buffer over its regulatory minimum of 10%. Additionally, its estimated supplementary leverage ratio improved to 7.2%, which is well above the required minimum. Furthermore, Citi passed the 2016 DFAST/CCAR examination from a quantitative as well as qualitative perspective, indicating continued improvement in capital planning systems and controls.

Citigroup Inc., a global financial services company headquartered in New York had $1.8 trillion in total assets as of December 31, 2016 and ranks as the fourth largest U.S. based financial institution by assets.

RATING DRIVERS
Given the fairly recent upgrade in 2016 and current challenging environment, DBRS views positive rating action over the near- to medium-term as remote. Over the longer-term, Citi’s continued success in enhancing its franchise by executing on its strategy while improving returns across business segments, combined with continued progress in adjusting to evolving regulatory requirements, could add positive pressure to the rating.

Conversely, negative ratings pressure could arise from a reversal in progress in business positioning, if accompanied by weakening profitability trends. Substantial issues related to misconduct, litigation or operational controls could also pressure ratings, particularly if DBRS perceives that these issues have impaired Citi’s reputation or are causing damage to the core franchise.

Notes:
All figures are in USD unless otherwise noted.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organizations (July 2016), DBRS Criteria: Support Assessment for Banks and Banking Organisations (March 2016), Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2017), DBRS Criteria: Guarantees and Other Forms of Explicit Support (February 2017), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Lisa Kwasnowski, Senior Vice President
Rating Committee Chair: William Schwartz, Senior Vice President
Initial Rating Date: July 24, 2001
Last Rating Date: February 29, 2016

The rated entity or its related entities did participate in the rating process. DBRS did have access to the accounts and other relevant internal documents of the rated entity or its related entities.