Citi Halts Share Buyback Amid New Regulation

Financial services behemoth Citigroup Inc. (C) has temporarily halted its share buyback program for the current quarter amid new capital regulatory rules. According to Reuters, Citi’s CFO, Mark Mason issued a statement at an investor conference on Wednesday. Shares closed at $62.46 on December 8.

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Standardized Approach for Counterparty Credit Risk

The new rule, Standardized Approach for Counterparty Credit Risk, is a new derivative model for calculating the risk-weighted assets held by banks. These risk-weighted assets form the Common Equity Tier 1 (CET 1) capital ratio.

As the ratio gets higher, banks must hold more capital to maintain its liquidity position. Mason said that the new rule will revise Citi’s risk-weighted assets upwards by $60 billion to $65 billion, thereby impacting its CET 1 ratio by 50 to 60 basis points.

According to the report, Mason further said that the bank is taking steps to implement the rule with minimal impact, and hopes to resume its share buyback in the first quarter at “levels close to” those of the third quarter.

The new rule has varying impacts on different banks and the capital adequacy ratios, they report. Earlier, Morgan Stanley (MS) had said that the rule would increase its risk-weighted assets by about $40 billion. Meanwhile, Bank of America Corp (BAC) had said that its risk-weighted assets had been reduced post the new rule.

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Consensus View

Citi stock has a Moderate Buy consensus rating based on 4 Buys and 2 Holds. The average Citigroup price target of $84.83 implies 35.8% upside potential to current levels. Shares have gained 5.9% over the past year.

Stock Investors

TipRanks’ Stock Investors tool shows that investors currently have a Very Negative stance on Citi, with 5.7% of portfolios tracked by TipRanks decreasing their exposure to Citi’s stock over the past 30 days.