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NEW YORK : The world's biggest bank Citigroup is taking on board 49 billion dollars' (34 billion euros) worth of hugely devalued subprime loans to reassure markets amid a credit downgrading on concern about its capital base.
The announcement by Citigroup late Thursday insisted that the bank was dealing with the damage done by the US home-loan crisis, just as financial markets showed renewed alarm about the fallout and scepticism over central bank measures to shore up confidence.
Saying that the assets concerned in its so-called structured investment vehicles (SIVs) had fallen from 87 billion dollars in August to 49 billion dollars, the bank insisted it was "maintaining the overall high credit quality of the portfolio."
By taking direct responsibility for the SIVs, the bank is in effect providing guarantees for the investment vehicles but at the price of an additional burden on its balance sheet and capital base.
The bank said it expected to make "orderly asset reductions" which would be enough "to meet liquidity requirements" until the end of next year, which currently stood at 35 billion dollars.
"As assets continue to be sold, Citi's risk exposure, and the capital ratio impact from consolidation, will be reduced accordingly," it said.
But Citigroup's statement contrasted with concern by Moody's investors Services which downgraded several of the bank's credit ratings on Thursday, warning that "Citigroup's capital ratios will remain low".
Moody's senior vice president Sean Jones said that this was likely because the bank "will need to take sizable writedowns."
Moody's also said it expected the bank to make "significant sustained provisions against its residential mortgage book, which is over 200 billion dollars" and that these charges would occur "when Citigroup's normal earnings power is depressed."
Furthermore "Citigroup's weak earnings should prohibit the bank from rapidly restoring capital ratios, despite its recent issuance of 7.5 billion dollars of hybrid capital."
And Moody's warned: "The company's failure to restore its capital ratios in the medium term would possible lead to a further downgrade."
Moody's downgraded its main notation for Citigroup from Aa2 to Aa3. - AFP/ms
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