In mid-February, Citibank announced plans to merge its two intermediate bank holding companies, Citigroup Holdings Company Inc. and Citicorp, into Citigroup Inc. The transaction, which is subject to regulatory approval, is expected to occur by the end of the third quarter this year and will transfer all existing debt and outstanding guarantees of Citicorp to Citigroup.
In addition to the merger of the two intermediate banks, Citibank will consolidate its capital markets funding activities into two legal entities. One entity will be Citigroup Inc., which will continue to issue long-term debt, trust-preferred securities and preferred common stock.
The other entity will be Citigroup Funding Inc., a newly formed, fully guaranteed first-tier subsidiary of Citigroup, which will issue commercial paper and medium-term notes. The consolidation of the funding operations is anticipated to begin during the second quarter of this year.
The decision by Citigroup to streamline its holding company structure and bring all capital markets-related funding into a single legal entity will not result in any rating changes when the transaction is complete, according to Standard & Poor’s. However, the rating agency says that Citigroup’s rating, which is currently AA- with a stable outlook, will be based on financial support rather than on the financial condition of the various legal entities. As a result of the consolidation, $17 billion of debt and $7 billion of commercial paper either issued or guaranteed by Citicorp will be assumed by or guaranteed by Citigroup.
According to Standard & Poor’s, the Citigroup holding company will therefore be responsible for payments on $128 billion of debt, $24 billion of commercial paper and $6 billion of preferred and hybrid capital instruments. Cashflows between the legal entities will be made easier by having a flatter organisational structure.