Monday, February 25, 2008

Citigroup Death Watch

Citigroup filed its 10-K on Friday, and it contained its most recent updated capital ratios. We have written about these ratios previously in this post:

November 5, 2007

Here are the numbers for Citigroup as of 12/31/2007 according to its 10-K. The numbers are in billions, so add six zeros:

Total Tier 1 Capital - $89,226
Total Tier 2 Capital - $44,895
Total Capital (Tier 1 and Tier 2)- $134,121


Tier 1 Capital - 7.12%
Total Capital (Tier 1 and Tier 2) - 10.70%
Leverage - 4.03%

Tier 1 risk-based capital ratio of 7.12% is calculated by dividing $89,226 by total Risk-Adjusted Assets of $ 1,253,321.

Total risk-based capital ratio of 10.70% is calculated by dividing $ 134,121 by total Risk-Adjusted Assets of $ 1,253,321.

Core capital (leverage) ratio of 4.03% is calculated by dividing $89,226 by adjusted average assets.

Some things to note -

1) The published 10-K ratios do not include some of the capital raising measures that Citigroup took in late December and January - proforma for that the Tier 1 Capital ratio would be 8.8%, well above regulatory levels.

2) On the flip side to that, there are future write offs coming at the end of the March quarter as well. These writeoffs will impact capital levels.

3) Its total tier one capital declined by only $1.6 billion over one year - fairly surprising considering the losses and write offs they took.

4) An interesting footnote that bears more study - "The impact of including Citigroup’s own credit rating in valuing derivatives and debt carried at fair value upon the adoption of SFAS 157 is excluded from Tier 1 Capital at December 31, 2007."

Does this mean that Citigroup is using monoline insurance ratings of AAA to value some of its capital. If that insurance was excluded then they would have to mark them down?

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