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Moody’s Investors Service has upgraded Citibank’s baseline credit assessment to baa1 from baa2 on the backdrop of a successful execution of management’s multi-year strategy to simplify its operations, reduce its global consumer footprint, enhance its safety and soundness, and pursue sustainable growth.
Citigroup’s sweeping reengineering since the global financial crisis places the bank on a sounder strategic footing with a more cogent business model and more targeted base of institutional and consumer customers, says Moodys.
“Although Citigroup’s footprint is smaller in a number of businesses, it retains strong economies of scale in its global cards and institutional businesses. Citigroup now has a more durable solvency profile,” said . Moody’s in its Rating Action notice.
Moody’s expect Citigroup to continue producing the steady earnings required for investment in order to harness the digital forces reshaping retail and institutional financial services, while continuing to reinforce its strong brand with its customers.
Citigroup’s institutional strategy centers on delivering cash management and operating services through the bank’s still ubiquitous global network spanning 98 countries and the world’s major trade corridors. Accordingly, Citigroup is a leader in transaction and securities services.
“When these operating services are combined with Citigroup’s extensive market making capabilities, this produces a robust stream of transaction and related trading revenues from global corporates , as well as a growing stock of core institutional LCR-friendly deposits,” says Moody’s.
Although Citigroup remains a large and complex organization, its risk management, risk appetite and corporate governance are significantly improved since the financial crisis and are well aligned with its strategy.
Therefore, Moody’s thinks it is unlikely that Citigroup will materially increase market, credit or operational risks or deviate from its client driven strategy. This strategy delivered $16.9 billion in net income to common shareholders and a 9.4 per cent return on average common equity in 2018.
This strategy (when combined with capital returns) has the potential to further strengthen returns for Citigroup shareholders. This should obviate the need to increase risks in pursuit of higher equity returns.
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