This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Corbat Scores Points For Clarity, But True Test Comes Thursday

Freeing Tied-Up Capital

The other two priorities outlined in the presentation include winding down Citi Holdings and utilizing the massive $55 billion deferred tax asset (DTA) before it expires.

About a quarter of the company's capital supports Citi Holdings, the "bad bank," which has been in wind-down mode since 2008.

Meanwhile, the bank also needs to set aside $40 billion in tangible equity to support its DTA, which cannot be counted for as regulatory capital under Basel III capital rules.

"About a third of capital is not available to generate returns that you expect and deserve," Corbat said. "We are fighting with one hand tied behind our back."

Corbat said that the bank will continue to wind down Citi Holdings, which now is mainly made up of U.S. mortgage loans. The unit signed a deal to sell $1.5 billion in mortgages, but Corbat warned that the wind-down will be gradual.

"Despite improvement in housing prices, we still don't believe sale of large scale mortgages is possible at prices that is acceptable," he said. We have no desire to sell these assets at a sizeable liquidity discount."

Citi has been cautious about the recovery in housing unlike its banking peers and has yet to release any of its $8.5 billion in mortgage loan loss reserves, which will be key to reducing losses at Citi Holdings.

Unless Citi materially increases its earnings, it will be unable to utilize the DTA and free tied-up capital for an increased return to shareholders.

Analysts have largely viewed Citi's new CEO favorably, with many anticipating higher returns from Corbat's restructuring efforts.

However, while Corbat may be scoring a few points with shareholders as he sets ambitious return targets, the real test might be how the bank performs on its annual stress test, the results of which will be announced by the Federal Reserve on Thursday.

-- Written by Shanthi Bharatwaj in New York.



>To contact the writer of this article, click here: Shanthi Bharatwaj.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
C $54.97 0.00%
AAPL $132.54 0.00%
FB $80.54 0.00%
GOOG $540.11 0.00%
TSLA $247.73 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs