UPDATE: Citi To Take 1Q Akbank Impairment Charge Of About $1.1 Billion
23 Marzo 2012 - 11:15PM
Dow Jones News
Citigroup Inc. (C) is reducing its stake in a Turkish bank and
its earnings will take a hit because the value of the investment
has declined.
Citi said it plans to cut its $3.4 billion ownership stake in
Akbank TAS (AKBNK.IS, AKBTY) to below 10%, from 20% now. It expects
a $1.1 billion pretax charge--or $700 million after taxes--in the
first quarter related to the decline in ownership's value, which
suffered from major currency swings, the bank said in a filing with
the Securities & Exchange Commission Friday.
Like all big banks, Citi is preparing itself for new, tighter
rules about how much of its capital the bank should hold as equity,
and so-called cross holdings of stakes in other companies would
negative impact Citi's capital under the Basel III rules. Cross
holdings below 10% are less problematic.
The Akbank stake, bought in January 2007, was one of the last of
a string of deals from a time when Citi was expanding
internationally through the acquisition of banks ranging from
Poland to China.
Chief Executive Vikram Pandit has divested some of those assets,
including a German retail bank and U.K. online bank Egg Banking
PLC. But Citi has been holding on to others, particularly in
markets Citi considers important to its international banking
strategy.
It holds a 50% stake in LQ Inversiones Financieras SA, the
holding company of Banco de Chile (BCH, CHILE.SN). Citi sold its
2.7% stake in Shanghai Pudong Development Bank Co. (600000.SH) in
China earlier this week, but it holds a 20% stake in Guangdong
Development Bank, also in China.
In its annual earnings filing last month, Citi had said its
Akbank stake, along with its stake in Morgan Stanley Smith
Barney--its brokerage joint-venture with Morgan Stanley (MS)--are
impaired.
Citi said in the annual filing excluding the impact of foreign
currency translation and related hedges, the value of its Akbank
investment had exceeded its carrying value.
"During the fourth quarter of 2011, however, the fair value of
Citi's equity method investment in Akbank declined, resulting in a
temporary impairment. During 2012 to date, Akbank's share price has
recovered significantly," Citi said in its annual filing.
Morgan Stanley, meanwhile, has an option to increase its stake
in Morgan Stanley Smith Barney this year to 65% from 51%. But
according to people familiar with the matter, both companies might
reach a deal to transfer Citi's entire 49%, which would further
enhance Citi's Basel III capital level.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
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