Two-Notch Debt Downgrade For Citi Could Require $4.7B In Extra Collateral

--Potential additional collateral needed for a two-notch downgrade declined $700 million from three months ago

--Value of Citi's Smith Barney brokerage joint venture with Morgan Stanley (MS) no longer impaired

--A one-notch downgrade for banking subsidiary might now require $2.6 billion, from $3.2 billion

(Adds details about the decrease in collateral requirements in case of a debt downgrade throughout.)

NEW YORK (Dow Jones)--Citigroup Inc. (C), stung by a very public setback in its recovery when regulators vetoed its share buyback, is preparing investors for the worst when it comes to a downgrade of its debt rating.