Banks' Use of CDS to Lower Capital Targeted by Basel Regulators

Banks' Use of CDS to Lower Capital Targeted by Basel Regulators

Scott Eells/Bloomberg

Blackstone Group LP, the world’s largest private-equity firm, last year insured Citigroup Inc. against any initial losses on a $1.2 billion pool of shipping loans. The regulatory capital trade, Blackstone’s first, let Citigroup cut how much it sets aside to cover defaults by as much as 96 percent, while keeping the loans on its balance sheet, according to two people with knowledge of the transaction.