Morningstar DBRS Confirms Long-Term Credit Ratings of Citigroup Inc. at A (high), Stable Trend

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Citigroup Inc. (Citi or the Company), including the Company's Long-Term Issuer Rating of A (high). At the same time, Morningstar DBRS confirmed the credit ratings of its primary banking subsidiary, Citibank, N.A. (the Bank). The trend for all credit ratings is Stable. The Intrinsic Assessment (IA) for the Bank is AA (low), while its Support Assessment remains SA1. The Company's Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank's IA.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings and Stable trend reflect the scale, quality and diversity of Citi's franchise. The Company's strong balance sheet fundamentals also provide key support to the credit ratings. The challenges Citi is facing with improving profitability, while making the necessary investments in response to its regulatory Consent Orders, along with executing its strategy transformation are also factored into the credit ratings. Citi's susceptibility to various geopolitical political uncertainties, given its unique global positioning is also taken into consideration. Additionally, Citi is exposed to a wide range of capital markets activities, which support the franchise value, but elevate risk levels.

CREDIT RATING DRIVERS
If Citi demonstrates success in leveraging its franchise to notably improve risk-adjusted returns across businesses, while delivering on its transformation priorities, the credit ratings would be upgraded. Conversely, a sustained deterioration of earnings or a significant weakening of balance sheet fundamentals would result in a credit ratings downgrade. Any indications of meaningful franchise impairment because of risk management deficiencies or operational missteps would also result in a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Very Strong
With $2.4 trillion in total assets, Citi is the third-largest bank in the U.S. The most global of U.S. banking organizations, Citi is one of only a few banking organizations worldwide with the brand and infrastructure to provide a full range of banking services to multi-national corporations globally. Indeed, the Company's Services segment, which includes its powerful Treasury and Trade Solutions and Securities Services businesses, operates in 180 different markets, serving 85% of the Fortune 500 companies, and processes nearly $5 trillion in payments daily. Additionally, Citi is the second-largest credit card issuer in the U.S. and maintains top-tier global market share positions across investment banking and trading activities.

Earnings Combined Building Block (BB) Assessment: Good
Citi's top line has proven resilient, averaging more than $76 billion in annual net revenues over the past five years, including 3% year-on-year revenue growth in 2024 and record revenue in Services, Wealth, and U.S. Personal Banking. Operating expenses, while still elevated because of ongoing transformation-related investments, declined by 2% (excluding the impact of the FDIC special assessment) during 2024, benefiting from the absence of a restructuring charge in the prior year and savings associated with the Company's simplification. For the full year 2024, Citi reported a return on tangible common equity of 7.0%, which remains at the bottom of the peer group and a credit ratings constraint. Over the medium term, Citi is targeting a return on tangible common equity of 10% to 11%, which we view as achievable.

Risk Combined Building Block (BB) Assessment: Strong/Good
While Citi's size and scale provide many benefits, managing risk across such a large, complex organization is a critical challenge. The Company has made steady progress addressing deficiencies cited by regulators, having closed out three long-standing consent orders; although, a considerable amount of work around data and regulatory reporting remains. Until these issues are resolved, we expect that Citi will continue to have challenges closing the earnings gap between peers. Positively, the Company's credit performance remains favorable across regions, with asset quality metrics normalizing, as expected. Additionally, the allowance for credit losses remains substantial at $18.6 billion, or 2.71% of total loans.

Funding and Liquidity Combined Building Block (BB) Assessment: Very Strong/Strong
Citi's sizable deposit base of $1.3 trillion, which is sourced through various channels, including its retail bank and Treasury and Trade Solutions business, anchors the Company's sound funding profile. Citi's reliance on wholesale funds primarily reflects its capital markets businesses and is well diversified by geography and investor. Long-term debt is well-laddered by maturity. Secured funding is done shorter-term, presenting potentially an overnight funding risk, though funding for less liquid assets is typically done on a term basis. Liquidity remains robust, with cash and securities totaling $746 billion at the end of Q4 2024, representing more than 30% of total assets.

Capitalization Combined Building Block (BB) Assessment: Strong/Good
Citi's capital metrics and internal capital generation provides a sound cushion to absorb unexpected losses. Even after returning nearly $7 billion to shareholders in dividends and repurchases during 2024, the Company's Standardized CET1 ratio of 13.6% at year-end, was approximately 150 basis points above its regulatory requirement. In January, Citi's Board authorized a new, multi-year $20 billion common stock repurchase program beginning in Q1 2025.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/447428.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social factor(s) that had a significant or relevant effect on the credit analysis.

Governance (G) Factors
The following Governance factor(s) had a relevant effect on the credit analysis: Morningstar DBRS views the Governance Impact of Corporate/ Transaction Governance ESG subfactor as relevant to the credit rating, but it does not affect the current assigned credit ratings or trends. In October 2020, the Federal Reserve and OCC issued Consent Orders against the Company that cited "significant ongoing deficiencies", criticizing Citi's systems and controls, and requiring demonstrated progress for remediation. Remediation efforts are ongoing, and the Company continues to incorporate regulatory feedback into these efforts.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 4, 2024), https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024; https://dbrs.morningstar.com/research/437781) in its consideration of ESG factors.

The following methodology has also been applied:
Morningstar DBRS Global Corporate Criteria (February 3, 2025), https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar, Inc. and company documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS did not have access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

The last credit rating action on this issuer took place on February 7, 2024.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are monitored.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Michael McTamney, Senior Vice President
Rating Committee Chair: Timothy O'Brien, Managing Director
Initial Rating Date: December 15, 1982

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.

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