Moody's downgrades Citigroup

Moody's Investors Service said it downgraded Citigroup Inc.'s preferred stock to A2 from A1, subordinated bonds to A1 from Aa3 and senior unsecured bonds to Aa3 from Aa2.

The agency also downgraded the issuer ratings, senior unsecured bonds and senior unsecured convertible bonds of Citigroup Funding, Inc. and Citigroup Global Markets Holdings Inc. to Aa3 from Aa2; the preferred stock of Citigroup Global Markets to A2 from A1; the preferred stock of Citicorp Capital I- XVIII to A1 from Aa3; Kazkommertsbank's subordinated regular bonds to Ba3 from Ba2; Associates Corp. of North America's issuer rating and senior unsecured bonds to Aa3 from Aa2 and subordinated bonds to A1 from Aa3; and Citibank, NA's issuer rating, senior unsecured OSO rating and senior unsecured bonds to Aa1 from Aaa.

The outlook is stable.

In addition, the following Citigroup subsidiaries were placed on review for possible downgrade: Citigroup Pty Ltd., Citigroup Global Mkts Deutsch AG & Co., Citibank Europe plc, Citibank International plc, Citibank (South Dakota), NA, Nikko Cordial Corp., Nikko Cordial Securities Inc., Nikko Citigroup Ltd., Nikko Citigroup Services Ltd., Egg Banking plc and Citibank Japan Ltd.

The agency said the downgrade was prompted by its view that Citigroup's capital ratios will likely remain low because management will need to take sizable write-downs against its subprime residential mortgage-backed securities and collateralized debt obligations portfolio.

Moody's believes Citigroup has options for rebuilding its capital base - including additional sources of external capital, more aggressive balance sheet management and internal capital retention by means of dividend reduction - and said this flexibility supports the stable outlook.

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