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"We think investors should consider several reasons why the outcome of a two-notch downgrade by Moody's would be manageable: 1) Citi's broker-dealer subsidiary already effectively carries a P-2 short-term rating at Moody's--and Citi's ratings were recently affirmed by S&P and Fitch, with the bank and broker-dealer each remaining at A-1 and F1, respectively; 2) Citi has increased the tenor of its repo funding over the past 2 years to months rather than weeks; 3) Citi has broadened its investor base to focus on less-ratings sensitive investors, including placing limits on ratings sensitive short-term funding sources (such as 2a-7 funds) which now comprise a "low-single digit" percentage of repo funding; and 4) Citi estimates that a two-notch downgrade from Moody's alone would trigger about $2.0B of additional cash obligations and collateral requirements--Citi's 10-K estimated cash obligations and collateral requirements would total $7.3B if all three agencies downgraded two notches simultaneously," Wells Fargo analysts wrote in an April 25 report. "Finally, Citi suggested that the market has become more forward-looking and sophisticated about counterparty assessment (and therefore, less reliant on the ratings agencies), suggesting investors have been preparing for the potential downgrade for some time."
Forward Annual Dividend Yield: 0.1%