In the wake of Citigroup Inc.'s (C) acquisition of the banking operations of Wachovia Corp. (WB), moves by major rating agencies on Tuesday attempted to put investors' focus back on Citi's own existing book of business. CFO Gary Crittenden updated company earnings guidance in a conference call with investors on Monday, and said that third-quarter net income will likely be lower than second-quarter’s net income, but stressed that Q3 results will be better than what was seen in the first quarter. He also said that Citi expects to have cut expenses by as much as $1 billion, as the company-- like many in the financial services industry -- has been laying off large numbers of employees. Nonetheless, continued corrosion in consumer credit will like have what Crittenden characterized as a "significant" impact on third-quarter results. He projected that total credit costs will be around $9.8 billion, higher than what what was observed in Q2; write-downs on mortgage and leveraged loan exposure is estimated at $1.5 billion, with another $2 billion in losses on credit card ABS, he said. Fitch Ratings said Tuesday that it expects Citigroup will post a loss in the third quarter -- which shouldn't surprise anyone -- but put the commercial banking giant on watch for a possible downgrade. The rating agency said that while it views the acquisition of Wachovia's banking operations as a positive way to increase Citigroup’s retail banking franchise, the acquisition does little to assuage concern about asset quality on Citi's existing books. "The strategic benefits of Citigroup Inc.'s acquisition of Wachovia Corp.'s retail, corporate/investment and private banking operations are tempered by Citi's own escalating asset quality challenges," Fitch said in a press statement. Standard and Poor's Ratings Services had similar concerns and placed Citigroup on a negative ratings watch on Wednesday, as well. "The action reflects continued pressures on Citigroup's own performance from write-downs on market-disrupted assets and the loan portfolios," said Tanya Azarchs, an S&P credit analyst. Standard and Poor's, like Fitch, does not view the merger with Wachovia as a risk to Citi on a stand-alone basis -- but, also like Fitch, S&P analysts are concerned about existing mortgage exposure. S&P said it may cut Citigroup's core credit ratings by up to two notches. While Wachovia did not formally fail, the Federal Deposit Insurance Corp. said it entered into a loss sharing arrangement on a pre-identified pool of loans with Citigroup. Under the agreement, Citigroup will absorb up to $42 billion of losses on a $312 billion pool of some loans, with the FDIC absorbing all losses beyond that point. Shares in Citigroup closed up 15.15 percent at $20.51 on Tuesday. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade. Editor's note: To contact the reporter on this story, email