NEW YORK: Citigroup Inc is pausing buybacks of its stock this quarter because of the expected impact of a new capital rule related to derivatives risks, Chief Financial Officer Mark Mason said on Wednesday.
Mason said the new rule, which banks must adopt by the first quarter, will likely increase Citigroup’s risk weighted assets by $60 to $65 billion and impact its Common Equity Tier 1 (CET1) capital ratio by 50 to 60 basis points.
Speaking at an investor conference, Mason said the bank is taking steps to mitigate the impact of the rule and will resume its buybacks in the first quarter at “levels close to” those of the third quarter.
The new rule, known as the Standardized Approach for Counterparty Credit Risk, is a complicated directive that sets out how banks should tally some of the risk-weighted assets against which they must hold capital. The higher the tally, the more capital the banks must hold.
The impact varies by bank and influences the return on capital that they report, a key profit measure.
In October, Morgan Stanley said it expected the rule would add about $40 billion to its risk weighted assets, but Bank of America Corp adopted the rule earlier and saw its RWA tally decrease.
For Citigroup, having to suspend buybacks, even briefly, to build capital, is painful because its stock is cheap and has recently been trading for less than its book value.- Reuters