julietapbroom-blog

[julietapbroom-blog]

TEXT: S&PCORRECT: Rtgs On Citigroup Unaffected By Good Q3 Results

NEW YORK (Standard & Poor's) Oct. 17, 2011--Standard & Poor's Ratings Services said today that its ratings on holding company Citigroup Inc. (Citi; A/Negative/A-1) are not immediately affected by the company's good third-quarter results, given the challenging operating conditions.Excluding Citi's $1.6 billion gain on its debt's fair value, the company generated Standard & Poor's-adjusted pretax earnings of $3.4 billion as of the third quarter, compared with $4.3 billion for third-quarter 2010. This year's result benefitted from $1.4 billion in reserve releases (versus the $2.0 billion in reserve releases last year) and was predominantly related to Citi's credit card business.Standard & Poor's adjusted revenue for Citicorp, which holds Citi's core assets, declined 2.3% year over year, largely due to weaker trading results. Nevertheless, Citicorp's loan balances increased 13.0% year over year, reflecting better growth prospects overseas. Excluding the gains on Citi's debt liability, Citicorp's return on assets (ROA) for the third quarter was basically flat from the same period last year, totaling 1.0%. We believe that Citicorp will be challenged to deliver on management's targeted ROA of 1.25% or higher in 2011, since returns have been below this level so far.Citi's total expenses declined 4% from second-quarter 2011, but the company's expenses increased 8.0% as of the third quarter. Management expects expenses to remain flat for the fourth quarter but may reduce expenses further if revenue declines next year.Citi's losses in Citi Holdings Inc., the unit that houses Citi's nonstrategic assets, continue to weigh down its returns. These losses increased to $1.3 billion (on a pretax Standard & Poor's-adjusted basis) in the third quarter from $0.3 billion in the previous quarter and $0.86 billion as of third-quarter 2010. Citi's assets declined to $289 billion as of third quarter 2011, a 6.2% decrease since the previous quarter. Citi plans to transfer its retail partner card assets to Citicorp because the assets are performing better than the company had expected. Excluding the partner card assets' transfer, we expect that the company will reduce its assets by roughly 30%-40% over the next two years.Although credit costs remain elevated, net credit losses were down 12.3% in the third quarter, compared with a loss of 17.9% in the second quarter. Delinquency trends continued to improve across most asset classes, except for the North American residential mortgage assets. We believe that charge-offs may increase in this asset class in the coming quarters, assuming further declines in home prices. However, Citi has lower exposure to mortgage-related issues than most of its peers.Citi's Tier 1 common capital ratio was 11.7% as of the third quarter, up 10 basis points from the previous quarter. We expect that this capital ratio will continue to improve in 2011 and 2012 due to a combination of positive earnings and further reduction of its balance sheet. Management has targeted a Tier 1 Basel III common capital ratio of 8%-9% by year-end 2012.Citi has disclosed that it had $20.6 billion of gross exposure to Greece, Ireland, Italy, Portugal, and Spain as of the end of the third quarter and $7.1 billion net exposure after applying collateral and hedges. In addition, Citi has disclosed that it had $14.4 billion in gross exposure ($2.0 billion net) to France and Belgium. We believe these exposures are manageable based on Citi's capital levels.Our outlook on Citi is negative. We will continue to evaluate the potential impact regulatory reform could have on the company and the evolution of the company's stand-alone credit profile. We will also continue to monitor Citi's ability to shed an additional $90 billion to $100 billion of Citi Holding's assets over the next two years, which, if achieved, would help reduce Citi's risk exposure. However, the challenging macroeconomic conditions could make it difficult for Citi to further reduce its balance sheet.

[julietapbroom-blog]

RPT-Italy debt costs set to ease at bond auction

* 5-yr yield seen falling to around 5.25 pct from 5.6 pct* First long-term debt sale after Fitch, Moody's downgradesBy Valentina ZaMILAN, Oct 13 (Reuters) - Italy is set to pay lower yields when it sells up to 6.5 billion euros of bonds on Thursday, with growing optimism that European leaders are responding more effectively to the euro zone debt crisis outweighing two rating downgrades in less than a week.Moody's and Fitch cut Italy's credit-ratings last week after the euro zone's third-largest economy took centre stage in the crisis this summer due to its towering debt pile and ailing growth rates.Expectations that a deal will be reached to expand the euro zone's rescue fund and that European leaders will hammer out a recapitalisation plan for the region's banks has won Italy some respite on the markets this month after its bond yields soared to near sustainable levels.Italian bonds have also been helped by purchases from the European Central Bank, which started in August, although even that has failed to keep a lasting lid on yields.The average rate on the five-year BTP bond on sale on Thursday is seen falling to around 5.25 percent from 5.60 percent a month ago -- broadly in line with secondary market levels on Wednesday. The bond has weakened ahead of the sale.Despite the fall, yield levels remain far from levels seen as comfortable over the long term for the sustainability of Italy's 1.9 trillion euro debt. In mid-June, before the start of a market sell-off of Italian assets, the auction yield on the five-year BTP was 3.9 percent."For now Italy will continue to pay high yields. This is sustainable for some time, and offers the country some wiggle room to tackle its structural problems," said Matteo Regesta, a strategist at BNP Paribas in London.Complicating the situation for Italy is its high political uncertainty, with Prime Minister Silvio Berlusconi expected to face a confidence vote this week after his centre-right government lost a key vote in parliament.Analysts said the government was unlikely to fall immediately but its ability to take action would be constantly hampered by internal disputes.They added at present the European agenda took precedence over domestic developments -- though these may stoke volatility."What's driving markets higher are European authorities' plans for banks' recapitalisations," said Intesa Sanpaolo fixed-income analyst Chiara Manenti. "It would be dangerous if what's been promised failed to materialise."France and Germany have said they will unveil a comprehensive crisis package at a summit delayed until Oct. 23.On Thursday, Italy will offer up to 3.5 billion euros of the 2016 bond and up to 3 billion euros spread over three bonds maturing in 2018, 2021 and 2025 which the Treasury has stopped selling on a regular basis.For the first time since mid-July Italy will sell a 15-year bond -- a longer maturity than the five- to ten-year area that traders say has been targeted by European Central Bank's purchases.Italy plans to issue around 75 billion euros in the last quarter of the year, roughly equally split between short-tem bills and bonds.

[julietapbroom-blog]

RPT-Italy debt costs set to ease at bond auction

* 5-yr yield seen falling to around 5.25 pct from 5.6 pct* First long-term debt sale after Fitch, Moody's downgradesBy Valentina ZaMILAN, Oct 13 (Reuters) - Italy is set to pay lower yields when it sells up to 6.5 billion euros of bonds on Thursday, with growing optimism that European leaders are responding more effectively to the euro zone debt crisis outweighing two rating downgrades in less than a week.Moody's and Fitch cut Italy's credit-ratings last week after the euro zone's third-largest economy took centre stage in the crisis this summer due to its towering debt pile and ailing growth rates.Expectations that a deal will be reached to expand the euro zone's rescue fund and that European leaders will hammer out a recapitalisation plan for the region's banks has won Italy some respite on the markets this month after its bond yields soared to near sustainable levels.Italian bonds have also been helped by purchases from the European Central Bank, which started in August, although even that has failed to keep a lasting lid on yields.The average rate on the five-year BTP bond on sale on Thursday is seen falling to around 5.25 percent from 5.60 percent a month ago -- broadly in line with secondary market levels on Wednesday. The bond has weakened ahead of the sale.Despite the fall, yield levels remain far from levels seen as comfortable over the long term for the sustainability of Italy's 1.9 trillion euro debt. In mid-June, before the start of a market sell-off of Italian assets, the auction yield on the five-year BTP was 3.9 percent."For now Italy will continue to pay high yields. This is sustainable for some time, and offers the country some wiggle room to tackle its structural problems," said Matteo Regesta, a strategist at BNP Paribas in London.Complicating the situation for Italy is its high political uncertainty, with Prime Minister Silvio Berlusconi expected to face a confidence vote this week after his centre-right government lost a key vote in parliament.Analysts said the government was unlikely to fall immediately but its ability to take action would be constantly hampered by internal disputes.They added at present the European agenda took precedence over domestic developments -- though these may stoke volatility."What's driving markets higher are European authorities' plans for banks' recapitalisations," said Intesa Sanpaolo fixed-income analyst Chiara Manenti. "It would be dangerous if what's been promised failed to materialise."France and Germany have said they will unveil a comprehensive crisis package at a summit delayed until Oct. 23.On Thursday, Italy will offer up to 3.5 billion euros of the 2016 bond and up to 3 billion euros spread over three bonds maturing in 2018, 2021 and 2025 which the Treasury has stopped selling on a regular basis.For the first time since mid-July Italy will sell a 15-year bond -- a longer maturity than the five- to ten-year area that traders say has been targeted by European Central Bank's purchases.Italy plans to issue around 75 billion euros in the last quarter of the year, roughly equally split between short-tem bills and bonds.