Citigroup cut its target Basel III Tier 1 common capital ratio to 9.5 percent from 10 percent, the New York-based company said today in a statement. The ratio’s current level stands at 10.1 percent, and the bank will still be above required minimums for common capital as well as the proposed supplementary leverage ratio, Citigroup said. The ratios are designed to ensure banks have a big enough cushion to withstand losses.
The Fed required the bank to boost its tally of risk-weighted assets that reflect operational matters to $288 billion from $232 billion, citing “the overall operating environment for the banking industry,” Citigroup said. The increase was a stipulation for approval of the bank’s ability to use a more flexible “advanced approach” to estimate risk-weighted assets.
The Fed and the Office of the Comptroller of the Currency said today eight of the biggest bank holding companies could use the advanced approach starting in the second quarter, including Citigroup, JPMorgan Chase & Co. (JPM), U.S. Bancorp, Goldman Sachs Group (GS) Inc. and Morgan Stanley. (MS)
While the advanced approach yields a higher ratio for most of the biggest banks, regulators will still examine lenders’ capital under both advanced and standardized approaches.
Bank of America Corp., ranked second by assets in the U.S., and Wells Fargo & Co. (WFC), the biggest home lender, weren’t included among today’s group. Spokesmen for the Fed and Bank of America’s Jerry Dubrowski declined to comment. Wells Fargo’s Mary Eschet didn’t have an immediate response.
Details of the Fed’s internal reasoning typically aren’t released. The absence of the two banks suggests they are “further behind than their peers on the quality of their data collection and risk governance to be able to get the approval,” said Mayra Rodriguez Valladares, managing principal at New York-based MRV Associates, which trains bank examiners and finance executives. “They’ve had multiple acquisitions at the height of the crisis and it takes years to integrate those into their systems.”
Bank of America and Wells Fargo both saw their capital plans pass the Fed’s stress tests last March, clearing them to buy back shares. Shares of both companies as well as Citigroup were little changed in New York trading.
JPMorgan, Goldman Sachs and Morgan Stanley are among other U.S. banks that have seen increases in their operational risk-weighted assets as legal costs have mounted.
Citigroup’s additional risk-weighted assets lowered its ratio from the 10.5 percent it reported last month. The bank ranks third by total assets among U.S. lenders.
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