Fitch Eyes Citigroup

Fitch Ratings has placed Citigroup Inc.'s AA-minus long-term Issuer Default Rating on Rating Watch Negative in the wake of Citi's acquisition of Wachovia Corp.'s retail, corporate/investment, and private banking operations. Fitch said the strategic benefits of the acquisition "are tempered by Citi's own escalating asset quality challenges." Separately, Fitch placed Wachovia Bank on Rating Watch Evolving and downgraded Wachovia's long-term IDR from A-plus to BB-minus. Noting that Wachovia is expected to be left with two operating businesses, Wachovia Securities and Evergreen Asset Management, Fitch said the balance sheet is likely to be funded with the remaining $9.8 billion in outstanding preferred stock and several billion dollars in equity. "There is a meaningful possibility that the earnings of the remaining businesses will be strong enough to service the preferred dividends," the rating agency said. "Alternatively, it is possible that a merger partner may emerge for the residual Wachovia Corp. However, the downgrade of Wachovia Corp. reflects Fitch's view of the considerable uncertainty surrounding these assumptions, particularly as Wachovia Securities would be carved away from the bank and no longer benefit from existing synergies." Fitch can be found online at http://www.fitchratings.com.