Tuesday, April 19, 2011

How Citi's $12.7B Asset Sale Fits Into Its Long-Range Capital Plans (C)

From Structured Finance News:
Implementation of Basel III remains years away, but Citigroup is wasting little time in unloading assets that will look a lot less attractive under the new regulatory framework.

At the end of the first quarter, Citi reclassified $12.7 billion of assets that it previously planned to hold to maturity, transferring them to the trading book to hasten their roll-off from the balance sheet. To date, the company has sold nearly three quarters of those assets, mainly at or above their marked prices.

The reclassified assets — a mix of mortgage securities, auction-rate securities (ARS) and corporate loans — would carry higher-than-average risk weightings under Basel III, requiring that more capital be held against them.
"As you start to move into a Basel III environment, we were able to make the case to transfer those assets out of hold-to-maturity and into trading," Citi Chief Financial Officer John Gerspach said on a conference call Monday with reporters. "It wasn't necessarily a pricing type of decision. It really was more of a Basel III decision than anything else."

But improvements in pricing no doubt made it an easier decision to sell the assets. It also helps that Citi finds its standing in the market sufficiently rehabilitated to withstand the $709 million impact against first-quarter earnings that was caused by the assets' reclassification....MORE