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Citigroup Says Dodd-Frank Drives Off Overseas Clients

Citigroup Inc. (C) said it could lose overseas customers and Goldman Sachs Group Inc. (GS) may have to limit transfers of capital among its units because of new regulations designed to make the financial system safer.

New derivatives rules set by the Dodd-Frank Act may force foreign clients at overseas branches to comply with U.S. standards, a prospect some don’t find appealing, New York-based Citigroup said today in its annual securities filing.

Customers “have expressed an unwillingness to continue to deal with overseas branches of U.S. banks if the rules would subject them to these requirements,” Citigroup said. “Citi could lose clients to non-U.S. financial institutions that are not subject to the same compliance regime.”

Bankers have said that new domestic and international regulations are crimping revenue and hurting growth. The companies provide shareholders with an updated list of risks to their business in their annual filings, and Citigroup put regulatory pitfalls first on its tally. JPMorgan Chase & Co. (JPM), the biggest U.S. bank, added almost a full page to its discussion.

Goldman Sachs said efforts by nations to “ring fence” the New York-based firm’s local subsidiaries against a crisis will probably compel it to hold more capital. Ring-fencing involves an attempt by regulators to protect their citizens if the local subsidiary of a foreign-controlled bank is enmeshed in a failure. The goal is to ensure the unit keeps enough assets on hand that can be seized to protect local clients and creditors.

Photographer: Angelos Tzortzinis/Bloomberg

A pedestrian passes a Citibank branch, operated by Citigroup Inc., in central Athens. Citigroup Inc. said it could lose overseas customers and Goldman Sachs Group Inc. may have to limit transfers of capital among its units because of new regulations designed to make the financial system safer. Close

A pedestrian passes a Citibank branch, operated by Citigroup Inc., in central Athens. ... Read More

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Photographer: Angelos Tzortzinis/Bloomberg

A pedestrian passes a Citibank branch, operated by Citigroup Inc., in central Athens. Citigroup Inc. said it could lose overseas customers and Goldman Sachs Group Inc. may have to limit transfers of capital among its units because of new regulations designed to make the financial system safer.

Capital Curbs

“The result has been and may continue to be additional limitations on our ability to efficiently move capital and liquidity among our affiliated entities, thereby increasing the overall level of capital and liquidity required by the firm on a consolidated basis,” Goldman Sachs said.

U.S. banks aren’t alone in their concern about cross-border regulations. Deutsche Bank AG fell the most in more than five months after Goldman Sachs cut the company to sell from hold, saying it may have to transfer $13 billion to its U.S. unit under new capital proposals.

Morgan Stanley (MS) said this week it may have to sell or make changes to some of its real-estate fund businesses by September to comply with the Bank Holding Company Act after receiving a third one-year extension. The firm also cut its investments in hedge funds as the Volcker rule, which limits such holdings, is set to go into effect.

Since March 2012, Goldman Sachs has taken back as much as 10 percent of redeemable interests in certain hedge funds each quarter, executing a plan laid out in last year’s filing. The firm also limited new investments in hedge funds and private- equity funds to 3 percent to comply with the rule, it said.

While Bank of America Corp. said new rules from the Consumer Financial Protection Bureau could have a significant negative effect on its results, it couldn’t estimate the impact because CFPB rules may be invalidated by a recent court decision over presidential appointments that may be applied to the CFPB.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Rick Green at rgreen18@bloomberg.net

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