The Nikko sale should add $2.5 billion to Citi’s tangible common equity, raising the ratio to 4.5%. This won’t likely be enough for Citi to pass the stress test. And they’re selling it at a loss, of course. But beggars can’t be choosers.
Francesco Guerrera, FT: Citigroup‘s strained balance sheet is set to receive a $2.5bn boost from the imminent sale of its Japanese brokerage Nikko Cordial, in a move that could strengthen Citi’s hand in talks with the US government over its capital needs.
Bankers said the sale of the unit to Sumitomo Mitsui Financial Group, announced on Friday, would result in an accounting loss for Citi but would increase its tangible common equity – a closely watched measure of its financial health…
[T]he disposal of Nikko Cordial is unlikely to be enough to close the capital shortfall identified by the stress test, the sale will reinforce Citi’s argument that it is on course to replenish its capital reserves with disposals and expense reductions.
Citi, which paid some $13bn in cash and shares for Nikko Cordial over several years, is expected to record an after-tax loss of about $200m on the deal.
However, the disposal will add about $2.5bn to Citi’s tangible common equity, bringing the ratio between tangible common equity and its total assets to about 4.5 per cent.