Citigroup Could Get Faster Regulatory Capital than Other Banks: Analyst

Citigroup Inc. (NYSE:C), which announced Tuesday that it would cut about 4,500 jobs, could get faster regulatory capital than other banks, according to a Wall Street analyst.

Chief Executive Vikram Pandit said in a presentation that 22 percent of Citigroup's risk-weighted assets were in Citi Holdings, supported by $25 billion of Tier 1 common equity.

"Although we expect the pace of asset shrinkage in Citi Holdings to slow, that $25 billion capital, along with $39 billion in deferred tax assets that are currently disallowed for regulatory purposes, could allow Citigroup to someday generate regulatory capital much faster than other major banks," Susquehanna Financial analyst David Hilder wrote in a note to clients.

The analyst, who has a "neutral" rating on the stock, said Citi Holdings and the deferred tax asset could be a source of significant future regulatory capital generation.

Citi Holdings will have total assets of $246 billion, or 13 percent of Citigroup's total assets, but will account for $217 billion, or 22 percent of Citigroup's risk-weighted assets, under Basel 1.

Thus, Citi Holdings is supported by $25 billion of Tier 1 common equity at Citigroup's overall Tier 1 common ratio of 11.7 percent under Basel 1. In addition, $39 billion of Citigroup's $50 billion of Deferred Tax Asset (DTA) is currently disallowed for regulatory capital purposes.

Assuming that Citigroup continues to generate pretax income, the DTA balance will decline, reducing the disallowed amount. The amount of regulatory capital generation from those two sources could be $8 billion to $10 billion per year, or a 7 percent to 8.5 percent increase in Tier 1 common capital.

Citigroup's chief executive recently said the banking giant would cut about 4,500 jobs, or about 1.7 percent of its workforce, in coming quarters and take a $400 million charge in the fourth quarter. Citigroup had 267,000 employees at the end of the third quarter, up from 260,000 six months earlier.

"No further details were provided, although at least some of the reductions will be in the Securities and Banking segment," Hilder said.

Shares of Citigroup closed Tuesday's regular trading session at $29.75 on the New York Stock Exchange. Analyst Hilder has a price target of $33.