NEW YORK ( TheStreet) -- Citigroup ( C - Get Report) and Goldman Sachs ( GS - Get Report)have made the best progress in reducing leverage from historical norms, according to an analysis by JMP Securities analyst Michael Hecht.

Leverage at Citigroup, which Hecht measures by dividing tangible assets by tangible common equity was 18.5 at the end of the third quarter, well below its average of 27.4 from 1997-2008. Goldman had a similar historical average of 27.3, which it has brought down to 16.4.

The key deleveraging event for Citigroup was the conversion of $58 billion preferred stock, including a $25 billion U.S. government stake, into common equity in September. That transaction brought Citi's leverage down from 50.8 at the end of the second quarter. Citi has also been selling assets, however, most recently raising $1 billion through its sale of a 93.5% stake in a Japanese call center.

Hecht's report also notes that European banks, including UBS ( UBS - Get Report), Deutsche Bank ( DB - Get Report) and Credit Suisse ( CS - Get Report) have historically carried much higher leverage than their U.S. counterparts, a discrepancy that remained in place in the third quarter. Indeed, leverage at Deutsche Bank was 66.2, well above its historical average of 46.3.

"Deutsche Bank... is the clear laggard among the group, and will likely be forced to recapitalize given our expectation for stricter regulatory capital requirements going forward," Hecht writes.

Citigroup's stock was up 3.7% Monday following news that hedge fund Paulson & Co., which came to prominence for hugely successful bets against the subprime mortgage boom, bought 300 million shares in the bank. Appaloosa Management, another high profile hedge fund that invested in Wells Fargo ( WFC - Get Report)and Bank of America ( BAC - Get Report), also made a big wager on Citi in the third quarter, buying up79.7 million shares, Bloomberg News reported.

-- Written by Dan Freed in New York.