Overview
- Following a likely sale of its consumer banking business, we believe the institutional client businesses and functions that are likely to remain in Australia-based Citigroup Pty Ltd. (CPL) are closely aligned with group strategy.
- Consequently, we consider that support from CPL's parent, Citigroup Inc. (Citi), if required, remains undiminished and likely in almost all foreseeable circumstances.
- We are affirming our 'A/A-1' ratings on CPL and removing the ratings from CreditWatch with negative implications.
- The outlook is stable, reflecting that on the parent.
Rating Action
On June 29, 2021, S&P Global Ratings affirmed its 'A' long-term and 'A-1' short-term credit ratings on Australia-based Citigroup Pty Ltd. (CPL). At the same time, we removed the ratings from CreditWatch, where we had placed them with negative implications on April 23, 2021. The outlook is stable.
Rationale
The affirmation of our ratings on CPL reflects our view that CPL remains likely to receive support from its parent, Citi, in almost all foreseeable circumstances, if required. This is because we believe that CPL's strategic importance to the Citi group remains undiminished and high.
We removed our ratings on CPL from CreditWatch with negative implications reflecting our view that CPL now faces relatively low risk that support from its parent will diminish in the next two years. We had placed our ratings on CPL on CreditWatch reflecting the uncertainty over CPL's future ownership, as well as likely group support, following announcement by Citi that it intends to exit its consumer banking businesses in several geographies, including Australia.
We consider that CPL will remain of high strategic importance to the Citi group. Although Citi plans to exit CPL's consumer banking businesses, we consider that the remaining businesses within CPL are closely aligned with group strategy. We anticipate that CPL will continue to house the custody and fund administration businesses (together, securities services), and the provision of shared services for other local related Citi entities. We believe the custody and fund administration businesses are likely to remain an important part of Citi's global strategy. Ongoing completion of the CPL acquisition of a competitor's domestic custody business in 2020 supports this view. In addition, CPL's shared services function means the entity will continue to be the main employing entity for Citi's Australian employees, including those not working in the businesses housed within CPL. Many of these businesses, such as the institutional client business, remain important to Citi's strategy. We believe that full ownership of CPL by Citi and the shared "Citi" name also create incentives for Citi to support CPL. Nevertheless, CPL's small size relative to the group's earnings and balance sheet make the entity slightly less integral to the group compared with its core subsidiaries, in our view.
Outlook
The stable outlook mirrors that on the group because we expect to maintain our long-term rating on CPL at one-notch below that on the core entities within the Citi group. We believe that Citigroup is likely to support CPL in almost all foreseeable circumstances. We expect CPL to retain its institutional client businesses and supporting functions even if it exits its consumer banking businesses. Consequently, CPL will remain important to the group's long-term strategy, in our view.
Downside scenario
We could lower our ratings on CPL if its strategic importance within the group weakens. This could occur if CPL seeks to transfer or exit the institutional client businesses and supporting functions after any sale of the consumer banking operations. We also expect to lower our ratings on CPL if we were to lower the ratings on its parent.
Upside scenario
We expect to raise our ratings on CPL if we were to raise the rating on its parent. We could also raise the rating if, over time, we saw CPL becoming even more important to the group and we considered it a core subsidiary. We see that as unlikely given the current plan to exit the consumer business.
Related Criteria
- General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019
- General Criteria: Group Rating Methodology, July 1, 2019
- General Criteria: Methodology For National And Regional Scale Credit Ratings, June 25, 2018
- Criteria | Financial Institutions | General: Methodology For Assigning Financial Institution Resolution Counterparty Ratings, April 19, 2018
- Criteria | Financial Institutions | General: Risk-Adjusted Capital Framework Methodology, July 20, 2017
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Guarantee Criteria, Oct. 21, 2016
- Criteria | Financial Institutions | Banks: Bank Rating Methodology And Assumptions: Additional Loss-Absorbing Capacity, April 27, 2015
- Criteria | Financial Institutions | Banks: Assessing Bank Branch Creditworthiness, Oct. 14, 2013
- Criteria | Financial Institutions | Banks: Quantitative Metrics For Rating Banks Globally: Methodology And Assumptions, July 17, 2013
- Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
- Criteria | Financial Institutions | Banks: Banks: Rating Methodology And Assumptions, Nov. 9, 2011
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
- General Criteria: Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
- Criteria | Financial Institutions | Banks: Commercial Paper I: Banks, March 23, 2004
Ratings List
| Ratings Affirmed; CreditWatch/Outlook Action | ||
|---|---|---|
| To | From | |
|
Citigroup Pty Ltd. |
||
| Issuer Credit Rating | A/Stable/A-1 | A/Watch Neg/A-1 |
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Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
| Primary Credit Analyst: | Riley Michel, Melbourne + (61) 3-9631-2108; riley.michel@spglobal.com |
| Secondary Contacts: | Nico N DeLange, Sydney + 61 2 9255 9887; nico.delange@spglobal.com |
| Brendan Browne, CFA, New York + 1 (212) 438 7399; brendan.browne@spglobal.com |
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