DBRS, Inc. (DBRS Morningstar) confirmed the ratings of Citigroup Inc. (Citi or the Company), including the Company’s Long-Term Issuer Rating of A (high). At the same time, DBRS Morningstar confirmed the ratings of its primary banking subsidiary, Citibank, N.A. (the Bank). The trend for all 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 RATING CONSIDERATIONS
The ratings and Stable trend reflect the scale, quality and diversity of Citi’s franchise. The Company’s robust balance sheet also provides key support to the ratings, including exceptional funding and liquidity, strong asset quality and sound capitalization. Moreover, we also consider 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 refresh. Furthermore, we also see Citi as exposed to a wide range of capital markets activities, which support the franchise value, but elevate risk levels. Citi’s susceptibility to emerging market weakness, trade disruptions and political uncertainties given its unique global positioning is also taken into consideration.
Given Citi’s ongoing transformation and strategy refresh, an upgrade is unlikely over the near term. Over the longer term, if Citi demonstrates success in leveraging its franchise to improve risk-adjusted returns across businesses, while demonstrating improved controls and systems through the termination of its Consent Orders, the ratings would be upgraded. Conversely, signs of notable credit deterioration or additional significant operational risk issues that have a prolonged adverse impact on profitability would result in a downgrade.
Franchise Combined Building Block (BB) Assessment: Very Strong
The Company has a very strong franchise with an extensive global reach. 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. At the same time, these global operations can provide customers in local markets with access to Citi’s broad international capabilities. The Company’s global scope shows in the scale of its international revenues, with just over 50% of its revenues generated outside North America in 2021.
Earnings Combined Building Block (BB) Assessment: Strong/Good
Citi’s earnings power remains resilient. For 2021, the Company reported a return on average common equity of 11.5%, slightly above pre-pandemic levels, but still at the low end of the U.S. peer group. Performance benefited from a substantial reserve release and exceptional capital markets-related results. Importantly, Citi’s substantial earnings power provides the resources to continually invest in technology, systems and process enhancements, which we see as a sustainable competitive advantage over smaller peers.
Risk Combined Building Block (BB) Assessment: Good
While Citi’s size and scale provide many benefits, particularly with its ability to spread costs across a broader platform, managing risk across such a large, complex organization is a critical challenge. 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 will result in additional expenses at a time when profitability metrics already lag peers. Until these issues are resolved, we expect that Citi will continue to have challenges closing the earnings gap between peers, which is a ratings constraint. Positively, the Company’s credit performance continues to be strong across regions and reserves remain substantial at $16.5 billion, or 2.49% of total loans.
Funding and Liquidity Combined Building Block (BB) Assessment: 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. Core deposits readily fund the entire loan portfolio and deposit growth was strong during 2021, primarily due to high levels of liquidity in the system. 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, including $775 billion of cash and debt securities at YE21, or about 34% of total assets.
Capitalization Combined Building Block (BB) Assessment: Strong
Citi’s internal capital generation remains favorable, providing a substantial cushion to absorb unexpected losses. Despite returning nearly $12 billion of capital to shareholders during 2021, the Company’s capital metrics remain strong, with a Standardized CET1 ratio of 12.2% at YE21.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/393728
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
DBRS Morningstar notes that this Press Release was amended on February 16, 2022 to incorporate links to Scorecard Indicators and Building Block Assessments and the company website.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organizations (July 19, 2021): https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations
Other applicable methodologies include the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021) :https://www.dbrsmorningstar.com/research/379424/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support
and DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021):
The primary sources of information used for this rating include Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar did have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This 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 ratings:
Each of the principal methodologies/principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, the “Global Methodology for Rating Banks and Banking Organizations” was used to evaluate the Issuer and the “DBRS Morningstar Criteria: Guarantees and Other Forms of Support” was used to rate the subsidiaries guaranteed by the Issuer.
The last rating action on this issuer took place on February 9, 2021, when most ratings were confirmed and one short-term ratings was upgraded.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
Lead Analyst: Michael McTamney, Senior Vice President – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG
Initial Rating Date: 24 July 2001
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