NEW YORK ( TheStreet) -- Citigroup ( C) was among the winners of the financial sector Tuesday on a report the bank will strengthen its proprietary trading unit. Citigroup plans to bolster the unit following the departure of eight employees owing to the U.S. government's proposal to ban banks from trading stocks with their own money, according to a report by Bloomberg, citing people with direct knowledge of the matter.
Bloomberg reports that Citigroup is trying to preserve the proprietary trading unit, which produces about $100 million of annual revenue, as banks face a the so-called "Volcker rule," which calls for a ban on proprietary trading. Kevin Russell, head of Americas stock trading, told employees and securities firms supporting the unit that Citigroup may increase the group's trading limits and capital, the report added. Separately, Citigroup raised its stake to 50% in the holding company for Banco de Chile. Citigroup has invested at least $1 billion in LQ Inversiones Financieras over the last two months, increasing its stake to 50% from 32.96%. Citigroup on Monday paid about $520 million for an 8.52% stake in LQ. Banco de Chile is controlled by the Luksic family through LQ. Citigroup shares were lately up 11 cents, or 2.8%, to $4. Other U.S. bank stocks traded without much direction Tuesday, showing little reaction to the financial reform plan outlined Monday by Sen. Christopher Dodd (D., Conn.). Dodd's bill includes harsher provisions than expected, including the so-called Volcker rule, as well as the establishment of an independent consumer protection agency. The proposal is considered a negative for banks, as it would force them to divest some holdings under certain conditions, raise costs and limit profitability. Still, most bank stocks barely budged on the news. JPMorgan Chase ( JPM) was off 0.3% to $42.93 and Wells Fargo ( WFC) was flat at $29.89. On the upside, Bank of America ( BAC) was up 1.1% to $17.03, Goldman Sachs ( GS) tacked on 0.6% to $174.58, and Morgan Stanley ( MS) rose 0.2% to $29.69. Elsewhere, Discover Financial ( DFS) shares were down 0.7% to $15.09 ahead of the company's first-quarter earnings report, due after the close of trading. Analysts are looking for a profit of 12 cents a share on revenue of $1.69 billion, according to Thomson Reuters.
On Sunday, The Wall Street Journal reported that the credit-card company will implement a new accounting rule requiring companies to bring their off-the-books securitized loans onto their balance sheet in fiscal 2010. Discover will bring on its books $21 billion of assets and increase reserves by $2.1 billion as a result of the rule change, according to the paper. Discover reported credit-card metrics for February on Monday. Delinquencies fell slightly to 5.50% last month from 5.55% in January, although the charge-off rate increased to 9.11% in February from 8.58%. Ambac Financial ( ABK) is also expected to open its books after the closing bell, with analysts looking for a fourth-quarter loss of $3.34 a share. The stock was lately down 0.9% to 76 cents. Meanwhile, United Western Bancorp ( UWBK) was among the biggest decliners of the financial sector after the company reported a fourth-quarter loss of $1.40 a share, although results included an other-than-temporary impairment charge on non-agency mortgage backed securities. FBR Capital Markets analyst Paul Miller estimates that United Western's adjusted loss for the quarter was 41 cents a share, which is worse than the Thomson Reuters average estimate for a loss of 9 cents a share. Credit deterioration continued in the quarter, with the provision for credit losses ballooning to $14.5 million from $10.1 million in the previous quarter, United Western said. Its shares were down 26.3% to $1.68. -- Written by Robert Holmes in Boston. Follow Robert Holmes on Twitter and become a fan of TheStreet.com on Facebook.