Citi Is Suddenly Looking A Bit Sturdier

Last fall, Citicorp Chairman John S. Reed's bold campaign to buttress his ailing bank with upwards of $5 billion appeared dead in the water. In October, Citi announced a third-quarter loss of $885 million, a staggering hit that damaged Citi's already-eviscerated capital base. Wall Street wags questioned whether Citi would be able to raise any new capital. There was even talk that the 53-year-old Reed would be forced to step down.

Now, many of those critics have been forced to hold their tongues, at least temporarily. Over the past five months, Citi has shed a slew of business interests, ranging from a small brokerage to a stake in Saudi American Bank (table). In all, analysts estimate that the sales could improve Citi's capital cushion by more than $800 million. On Mar. 13, Citi announced that it would sell $150 million of preferred stock to the public--the bank's first equity offering in a year. Many analysts now believe that Citi's core capital, which stood at 3.7% of assets at the end of 1991, will soon reach the 4% minimum that regulators have mandated for the end of 1992.

What's behind the recent success of Citi's capital plan? A key factor is the market's improved perception of Citi. Indeed, Citi's stock price has almost doubled, to 17, from just below 9 in mid-December. True, Standard & Poor's Corp. downgraded Citi's preferred stock after the bank announced its latest issue. But "there's a feeling that the worst is over," says analyst Frank De Santis of Donaldson, Lufkin & Jenrette Inc. The deterioration in Citi's loan portfolio has slowed, and most analysts agree that, after losing $457 million in 1991, the bank will be profitable this year. Even talk of Reed's demise as CEO has subsided.

Citi's improved image has strengthened its bargaining position in the asset disposals. "There's no longer an impression of a fire sale," says a Wall Street investment banker.

Citi's sale of AMBAC Inc., the bank's municipal-bond insurance subsidiary, is a good example. The first offering of 50.3% of the unit last July was priced at $20 a share, or $352 million--30% less than what Citi had hoped for. After fees and taxes, Citi ended up booking a $48 million loss on the sale. When the bank sold its remaining 49.7% interest, it raised $550 million, or $31.75 a share. The result: a $100 million gain.

LONG SHOT. While Citi's capital drive has been impressive, analysts are beginning to wonder whether Reed is running out of attractive nuggets to sell. Morgan Stanley & Co. is trying to put together a deal to sell Quotron Systems Inc., Citi's ailing electronic stock-quote system. But investment bankers view that as a long shot at best. And Citi has backed away from the possibility of selling 20% of its credit-card business. Higher delinquency rates have no doubt diminished the appeal of the business. Executives from Citi's consumer bank are also said to oppose such a sale.

A more fundamental question is whether Citi will be able to keep up with regulators'--and the marketplace's--rising perception of how much capital a solid bank should have. Analyst Raphael Soifer of Brown Brothers Harriman & Co. estimates that Citi would need an additional $4.5 billion to reach Chemical Banking Corp.'s 6% capital ratio. "Capital strength is a moving target, and it has been moving steadily upward," says Soifer. That means that Reed's bold capital plan may have to get even bolder.

CITI'S CAPITAL-RAISING
      In addition to a planned sale of $150 million in preferred stock, Citi is 
      boosting capital by unloading the following assets:
      AMBAC Sold share in the bond insurance company in January for $100 million 
      gain. Sale frees $200 million in capital
      SAUDI AMERICAN BANK Unloaded 10% stake in December for $203 million gain
      LYNCH, JONES & RYAN Disposed of small brokerage subsidiary in December for as 
      much as $15 million
      ESTABLISHMENT SERVICES Shopping merchant credit-card processing business, which 
      could fetch $150 million
      CAPITAL MARKETS ASSURANCE Agreed in November to sell securities insurer. Deal 
      could free $200 million in capital
      DATA: COMPANY REPORTS, BW