Citigroup (C) Won't Seek Added Capital Return in 2012 Resubmission

June 8, 2012 4:10 PM EDT
Citigroup Inc. (NYSE: C) said it decided not to request any additional return of capital in its 2012 re-submission of its 2012 Comprehensive Capital Analysis and Review (CCAR) capital plan. Today's news following news earlier in the year that the bank's plan to return cash to shareholders was turned down, although the bank comfortably exceeded the stress test requirements.

Statement on Re-Submission of 2012 CCAR Capital Plan

“In March, the Federal Reserve released the results of its hypothetical severe stress test scenario as part of the 2012 CCAR. The results showed that Citi comfortably exceeded the stress test requirements without Citi’s proposed capital actions. However, while the Federal Reserve did not object to Citi conducting certain capital actions, such as the redemption of trust preferred securities as described below, and to continue its current dividend, it did not approve Citi’s request to return additional capital to its shareholders.

“Citi will re-submit its capital plan on Monday, June 11 as required. The Federal Reserve will act on the plan later this year. As we noted in April, the Federal Reserve’s schedule requires us to submit our 2013 capital plan in January. In light of that timing, we have decided not to request any additional return of capital in the 2012 re-submission. We will make decisions regarding the 2013 capital plan later this year. In the meantime, we will continue to build additional capital through earnings and the ongoing reduction of non-core assets.

“Citi is one of the best capitalized banks in the world. At of the end of the first quarter of 2012, our Tier 1 Common ratio was 12.5% under Basel I and an estimated 7.2% under Basel III, Citi is also highly liquid, with close to $500 billion in cash and available-for-sale securities, representing approximately 26% of the balance sheet.

“These strong capital and liquidity levels result from the decisions we made to make Citi a fundamentally different company today than it was before the financial crisis. We have overhauled risk management and focused on the basics of banking, leveraging our unique presence throughout the emerging and developed markets to serve our clients and the real economy. We have sold more than 60 businesses that were non-core to our strategy, helping to drive the approximately 75% reduction in the size of Citi Holdings. At of the end of the first quarter, Citi Holdings assets were $209 billion, or just 11% of Citi’s total balance sheet.

“With greatly improved financial strength, a highly liquid balance sheet, and our strategy showing results, Citi will continue to build its capital levels for the benefit of our shareholders.”

Redemption of Trust Preferred SecuritiesIssued by Citigroup Capital XII and Citigroup Capital XXI

Citi also announced the redemption of two series of Citi trust preferred securities – the 8.500% Fixed Rate/Floating Rate TRUPS issued by Citigroup Capital XII (CUSIP: 17315D204) (the “Capital XII TRUPS®”) and the 8.300% Fixed Rate/Floating Rate Enhanced TRUPS® issued by Citigroup Capital XXI (CUSIP: 173094AA1) (the “Capital XXI ETRUPS®” and together with the Capital XII TRUPS®, the “TRUPS®”). The TRUPS® are being redeemed, along with the common securities issued by Citigroup Capital XII and Citigroup Capital XXI and held by Citi, as a result of the concurrent redemption in whole by Citi of the junior subordinated debt securities held by Citigroup Capital XII and Citigroup Capital XXI which underlie the TRUPS®.

On June 7, 2012, the Board of Governors of the Federal Reserve System issued a notice of proposed rulemaking addressing, among other matters, Section 171 (the “Collins Amendment”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act to clarify the timing of when, and in what proportions, outstanding trust preferred securities issued prior to May 19, 2010 will no longer qualify as Tier 1 Capital under existing regulatory capital guidelines applicable to Citigroup. Citi has determined, based on a legal opinion of counsel, that this notice of proposed rulemaking constitutes a “regulatory capital event” as defined under the terms of the TRUPS® and, accordingly, Citi has the contractual right to redeem the TruPS® (in whole and not in part). As a result of these redemptions, Citigroup’s Tier 1 Capital is expected to decrease by approximately $4.9 billion and its Tier 1 Capital ratio is expected to decrease by approximately 50 basis points. Citigroup’s Tier 1 Common capital and related Tier 1 Common ratio, under Basel I and as estimated under Basel III, will not be affected by these redemptions.

The redemption date for the TRUPS® will be July 18, 2012, and the cash redemption price paid on the redemption date will equal

$25 plus $0.10625 in accumulated and unpaid distributions, per Capital XII TRUPS®; and
$1,000 plus $6.2250 in accumulated and unpaid distributions, per Capital XXI ETRUPS®.

Beginning on the redemption date, the TRUPS® will no longer be considered outstanding and distributions will no longer accrue on the TRUPS®.

The quarterly distribution payment on the Capital XII TRUPS® due June 30, 2012 and the semiannual distribution payment on the Capital XXI ETRUPS® due June 21, 2012 will be paid as scheduled.

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